-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S9hcQv/+denNWk/kqglddh1m4Zq/Ls+j59bSh6mOX9yhA3HbI1+1NqckT/Uowvv4 MqUQftHsCs6TjugWFq3puA== 0000950152-00-002340.txt : 20000411 0000950152-00-002340.hdr.sgml : 20000411 ACCESSION NUMBER: 0000950152-00-002340 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHEMED CORP CENTRAL INDEX KEY: 0000019584 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-CHEMICALS & ALLIED PRODUCTS [5160] IRS NUMBER: 310791746 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08351 FILM NUMBER: 582439 BUSINESS ADDRESS: STREET 1: 2600 CHEMED CTR STREET 2: 255 EAST FIFTH ST CITY: CINCINNATI STATE: OH ZIP: 45202-4726 BUSINESS PHONE: 5137626900 10-K 1 CHEMED CORPORATION 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 or Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition period from _______________ to ______________ Commission File Number: 1-8351 CHEMED CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 31-0791746 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2600 Chemed Center, 255 East Fifth Street, Cincinnati, Ohio 45202-4726 (Address of principal executive offices) (Zip Code) (513) 762-6900 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------- ------------------- Capital Stock - Par Value $1 Per Share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing price of said stock on the New York Stock Exchange -Composite Transaction Listing on March 17, 2000 ($31.125 per share), was $302,080,940. At March 17, 2000, 10,236,277 shares of Chemed Corporation Capital Stock (par value $1 per share) were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Document Where Incorporated -------- ------------------ 1999 Annual Report to Stockholders (Specified Portions) Parts I, II and IV Proxy Statement for Annual Meeting Part III to be held May 15, 2000. 2 CHEMED CORPORATION 1999 FORM 10-K ANNUAL REPORT TABLE OF CONTENTS PAGE PART I Item 1. Business............................................................. 1 Item 2. Properties........................................................... 5 Item 3. Legal Proceedings.................................................... 8 Item 4. Submission of Matters to a Vote of Security Holders.................. 8 -- Executive Officers of the Registrant................................. 8 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.................................................. 9 Item 6. Selected Financial Data..............................................10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................10 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. Item 8. Financial Statements and Supplementary Data..........................10 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................................11 PART III Item 10. Directors and Executive Officers of the Registrant...................11 Item 11. Executive Compensation...............................................1l Item 12. Security Ownership of Certain Beneficial Owners and Management...........................................................11 Item 13. Certain Relationships and Related Transactions.......................11 PART IV Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K..........................................................11 3 PART I ITEM 1. BUSINESS GENERAL Chemed Corporation was incorporated in Delaware in 1970 as a subsidiary of W. R. Grace & Co. and succeeded to the business of W. R. Grace & Co.'s Specialty Products Group as of April 30, 1971 and remained a subsidiary of W. R. Grace & Co. until March 10, 1982. As used herein, "Company" refers to Chemed Corporation, "Chemed" refers to Chemed Corporation and its subsidiaries and "Grace" refers to W. R. Grace & Co. and its subsidiaries. On March 10, 1982, the Company transferred to Dearborn Chemical Company, a wholly owned subsidiary of the Company, the business and assets of the Company's Dearborn Group, including the stock of certain subsidiaries within the Dearborn Group, plus $185 million in cash, and Dearborn Chemical Company assumed the Dearborn Group's liabilities. Thereafter, on March 10, 1982 the Company transferred all of the stock of Dearborn Chemical Company to Grace in exchange for 16,740,802 shares of the capital stock of the Company owned by Grace with the result that Grace no longer has any ownership interest in the Company. On December 31, 1986, the Company completed the sale of substantially all of the business and assets of Vestal Laboratories, Inc., a wholly owned subsidiary. The Company received cash payments aggregating approximately $67.4 million over the four-year period following the closing, the substantial portion of which was received on December 31, 1986. On April 2, 1991, the Company completed the sale of DuBois Chemicals, Inc. ("DuBois"), a wholly owned subsidiary, to the Diversey Corporation ("Diversey"), then a subsidiary of The Molson Companies Ltd. Under the terms of the sale, Diversey agreed to pay the Company net cash payments aggregating $223,386,000, including deferred payments aggregating $32,432,000. On December 21, 1992, the Company acquired The Veratex Corporation and related businesses ("Veratex Group") from Omnicare, Inc., a publicly traded company in which Chemed currently maintains a .5 percent ownership interest. The purchase price was $62,120,000 in cash paid at closing, plus a post-closing payment of $1,514,000 (paid in April 1993) based on the net assets of Veratex. Effective January 1, 1994, the Company acquired all the capital stock of Patient Care, Inc. ("Patient Care"), for cash payments aggregating $20,582,000, including deferred payments with a present value of $6,582,000, plus 17,500 shares of the Company's Capital Stock. An additional cash payment of $1,000,000 was made on March 31, 1996 and another payment of $1,000,000 was made on March 31, 1997. In July 1995, the Company's Omnia Group (formerly Veratex Group) completed the sale of the business and assets of its Veratex Retail division to Henry Schein, Inc. ("HSI") for $10 million in cash plus a $4.1 million note for which payment was received in December 1995. Effective September 17, 1996, the Company completed a merger of a subsidiary of the Company, Chemed Acquisition Corp., and Roto-Rooter, Inc. pursuant to a Tender Offer 1 4 commenced on August 8, 1996 to acquire any and all of the outstanding shares of Common Stock of Roto-Rooter, Inc. for $41.00 per share in cash. On September 24, 1997, the Company completed the sale of its wholly owned businesses comprising the Omnia Group to Banta Corporation for $50 million in cash and $2.3 million in deferred payments. Effective September 30, 1997, the Company completed a merger between its 81-percent-owned subsidiary, National Sanitary Supply Company, and a wholly owned subsidiary of Unisource Worldwide, Inc. for $21.00 per share, with total payments of $138.3 million. The Company now conducts its business operations in three segments: Roto-Rooter Group ("Roto-Rooter"), Patient Care and Service America Systems, Inc. ("Service America"). FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS The required segment and geographic data for the Company's continuing operations (as described below) for the three years ended December 31, 1997, 1998 and 1999, are shown in the "Segment Data" on pages 26 and 27 of the 1999 Annual Report to Stockholders and are incorporated herein by reference. DESCRIPTION OF BUSINESS BY SEGMENT The information called for by this item is included within Note 1 of the Notes to Financial Statements appearing on page 17 of the 1999 Annual Report to Stockholders and is incorporated herein by reference. PRODUCT AND MARKET DEVELOPMENT Each segment of Chemed's business engages in a continuing program for the development and marketing of new services and products. While new products and services and new market development are important factors for the growth of each active segment of Chemed's business, Chemed does not expect that any new products and services or marketing effort, including those in the development stage, will require the investment of a material amount of Chemed's assets. RAW MATERIALS The principal raw materials needed for Chemed's United States manufacturing operations are purchased from United States sources. No segment of Chemed experienced any material raw material shortages during 1999, although such shortages may occur in the future. Products manufactured and sold by Chemed's active business segments generally may be reformulated to avoid the adverse impact of a specific raw material shortage. PATENTS, SERVICE MARKS AND LICENSES The Roto-Rooter(R) trademark and service mark have been used and advertised since 1935 by Roto-Rooter Corporation, a wholly owned subsidiary of Roto-Rooter, Inc., a 100 percent-owned subsidiary of the Company. The Roto-Rooter(R) marks are among the most highly recognized trademarks and service marks in the United States. Chemed considers the Roto-Rooter(R) marks to be a valuable asset and a significant factor in the marketing 2 5 of Roto-Rooter's franchises, products and services and the products and services provided by its franchisees. COMPETITION ROTO-ROOTER All aspects of the sewer, drain, and pipe cleaning, HVAC services and plumbing repair businesses are highly competitive. Competition is, however, fragmented in most markets with local and regional firms providing the primary competition. The principal methods of competition are advertising, range of services provided, speed and quality of customer service, service guarantees, and pricing. No individual customer or market group is critical to the total sales of this segment. PATIENT CARE The home healthcare services industry and, in particular, the nursing and personal care segment is highly competitive. Patient Care competes with numerous local, regional and national home healthcare services companies. Patient Care competes on the basis of quality, cost-effectiveness and its ability to service its referral base quickly throughout its regional markets. Patient Care has contracts with several customers, the loss of any one or more of which could have a material adverse effect on this segment. SERVICE AMERICA All aspects of the HVAC and appliance repair and maintenance service industry are highly competitive. Competition is, however, fragmented in most markets with local and regional firms providing the primary competition. The principal methods of competition are advertising, range of services provided, speed and quality of customer service, service guarantees, and pricing. No individual customer or market group is critical to the total sales of this segment. RESEARCH AND DEVELOPMENT Chemed engages in a continuous program directed toward the development of new products and processes, the improvement of existing products and processes, and the development of new and different uses of existing products. The research and development expenditures from continuing operations have not been nor are they expected to be material. GOVERNMENT REGULATIONS Roto-Rooter's franchising activities are subject to various federal and state franchising laws and regulations, including the rules and regulations of the Federal Trade Commission (the "FTC") regarding the offering or sale of franchises. The rules and regulations of the FTC require that Roto-Rooter provide all prospective franchisees 3 6 with specific information regarding the franchise program and Roto-Rooter in the form of a detailed franchise offering circular. In addition, a number of states require Roto-Rooter to register its franchise offering prior to offering or selling franchises in the state. Various state laws also provide for certain rights in favor of franchisees, including (i) limitations on the franchisor's ability to terminate a franchise except for good cause, (ii) restrictions on the franchisor's ability to deny renewal of a franchise, (iii) circumstances under which the franchisor may be required to purchase certain inventory of franchisees when a franchise is terminated or not renewed in violation of such laws, and (iv) provisions relating to arbitration. Roto-Rooter's ability to engage in the plumbing repair business is also subject to certain limitations and restrictions imposed by state and local licensing laws and regulations. Service America's operations are regulated by the Florida and Arizona Departments of Insurance. In accordance with certain Florida regulatory requirements, Service America maintains cash with the Department of Insurance and is also required to maintain additional unencumbered reserves. In addition, Service America's air conditioning and appliance repair and maintenance business is also subject to certain limitations imposed by state and local business laws and regulations. Patient Care's activities are subject to various federal and state laws and regulations. Changes in the law, new interpretations of existing laws, or changes in payment methodology, may have a dramatic effect on the definition of permissible or impermissible activities, the relative costs associated with doing business and the amount of reimbursement by both government and other third-party payors. In addition to specific legislative and regulatory influences, efforts to reduce the growth of the federal budget and the Medicare and the Medicaid programs have resulted in enactment of the Balanced Budget Act of 1997. This law contains several provisions affecting Medicare payment for the coverage of home healthcare services which directly or indirectly, together with Medicaid payments, accounted for 70 percent of Patient Care's net revenue in 1999. Certain of these provisions could have an adverse effect on Patient Care. In addition, state legislatures periodically consider various healthcare reform proposals. Congress and state legislatures can be expected to continue to review and assess alternative healthcare delivery systems and payment methodologies, and public debate of these issues can be expected to continue in the future. The ultimate timing or effect of such additional legislative efforts cannot be predicted and may impact Patient Care in different ways. No assurance can be given that any such efforts will not have a material adverse effect on Patient Care. Certain of Patient Care's employees are subject to state laws and regulations governing professional practice. Patient Care's operations are subject to periodic survey by governmental and private accrediting entities to assure compliance with applicable state licensing, and Medicare and Medicaid certification and accreditation standards, as the case may be. From time to time in the ordinary course of business, Patient Care, like other healthcare companies, receives survey reports containing deficiencies for alleged failure to comply with applicable requirements. Patient Care reviews such reports and takes appropriate corrective action. The failure to effect such action or to obtain, renew or maintain any of the required regulatory approvals, certifications or licences could materially adversely affect Patient Care's business, and could prevent the programs involved from offering products and services to patients. There can be no assurance that either the states or the federal government will not impose additional regulations upon the activities of Patient Care which might materially adversely affect Patient Care. 4 7 ENVIRONMENTAL MATTERS Roto-Rooter's operations are subject to various federal, state, and local laws and regulations regarding environmental matters and other aspects of the operation of a sewer and drain cleaning, HVAC and plumbing services business. For certain other activities, such as septic tank pumping, Roto-Rooter is subject to state and local environmental health and sanitation regulations. Service America's operations are also subject to various federal, state and local laws and regulations regarding environmental matters and other aspects of the operation of a HVAC and appliance repair and maintenance service industry. In connection with the sale of DuBois to the Diversey Corporation, the Company contractually assumed for a period of ten years the estimated liability for potential environmental cleanup and related costs arising from the sale of DuBois up to a maximum of $25,500,000. Based upon an updated assessment of the Company's environmental-related liability by the Company's environmental adviser, the Company has accrued $4,157,000 at December 31, 1999 to cover these costs. Prior to the sale of DuBois, DuBois had been designated as a Potentially Responsible Party ("PRP") at fourteen Superfund sites by the U.S. Environmental Protection Agency ("USEPA"). With respect to all of these sites, the Company has been unable to locate any records indicating it disposed of waste of any kind at such sites. Nevertheless, it settled claims at five such sites at minimal cost. In addition, because there was a number of other financially responsible companies designated as PRPs relative to these sites, management believes that it is unlikely that such actions will have a material effect on the Company's financial condition or results of operations. With respect to one of these sites, the Company's involvement is based on the location of one of its manufacturing plants. Currently, the USEPA and the state governmental agency are attempting to resolve jurisdictional issues, and action against PRPs is not proceeding. Chemed, to the best of its knowledge, is currently in compliance in all material respects with the environmental laws and regulations affecting its operations. Such environmental laws, regulations and enforcement proceedings have not required Chemed to make material increases in or modifications to its capital expenditures and they have not had a material adverse effect on sales or net income. Capital expenditures for the purposes of complying with environmental laws and regulations during 2000 and 2001 with respect to continuing operations are not expected to be material in amount; there can be no assurance, however, that presently unforeseen legislative or enforcement actions will not require additional expenditures. EMPLOYEES On December 31, 1999, Chemed had a total of 7,817 employees; 7,769 were located in the United States and 48 were in Canada. ITEM 2. PROPERTIES Chemed has plants and offices in various locations in the United States and Canada. The major facilities operated by Chemed are listed below by industry segment. All "owned" property is held in fee and is not subject to any major encumbrance. Except as otherwise shown, the leases have terms ranging from one year to eight years. Management does not foresee any difficulty in renewing or replacing the remainder of its current leases. Chemed considers all of its major operating properties to be maintained in good operating condition and to be generally adequate for present and anticipated needs. 5 8
Location Type Owned Leased -------- ---- ----- ------ ROTO-ROOTER GROUP Cincinnati, OH (1) Office and service 29,000 sq. ft. 28,000 sq. ft. facilities West Des Moines, Office, manufacturing and 29,000 sq. ft. -- IA distribution center facilities Northeastern Office and service 31,000 sq. ft. 50,000 sq. ft. U.S. Area (2) facilities Central U.S. Office and service 26,000 sq. ft. 72,000 sq. ft. Area (3) facilities Mid-Atlantic Office and service 19,000 sq. ft. 30,000 sq. ft. U.S. Area (4) facilities Southeastern U.S. Office and service 18,000 sq. ft. 49,000 sq. ft. Area (5) facilities Western Central Office and service 19,000 sq. ft. 30,000 sq. ft. U.S. Area (6) facilities Western U.S. Office and service -- 60,000 sq. ft. Area (7) facilities Canada (8) Office and service -- 13,000 sq. ft. facilities PATIENT CARE New Jersey (9) Office -- 56,000 sq. ft. Connecticut (10) Office -- 42,000 sq. ft. New York (11) Office -- 41,000 sq. ft. Illinois (12) Office -- 2,000 sq. ft. Ohio (13) Office -- 3,000 sq. ft. Kentucky (14) Office -- 4,000 sq. ft. Georgia (15) Office -- 2,000 sq. ft. Washington, DC (16) Office -- 2,000 sq. ft. Virginia (17) Office -- 2,000 sq. ft.
6 9
Location Type Owned Leased -------- ---- ----- ------ Maryland (18) Office -- 2,000 sq. ft. SERVICE AMERICA Florida (19) Office and service 46,000 sq. ft. 46,000 sq. ft. facilities Arizona (20) Office and service -- 17,000 sq. ft. facilities CORPORATE Cincinnati, OH (21) Corporate offices and 8,000 sq. ft. 38,000 sq. ft. related facilities - ---------------------------------
(1) Includes 6,000 square feet that formerly housed a service facility. (2) Comprising locations in Stoughton and Woburn, Massachusetts; West Stratford; Connecticut; Farmingdale, Hawthorne, and Staten Island, New York; Pennsauken and Brunswick, New Jersey; Levittown and Philadelphia, Pennsylvania; Cranston, Rhode Island; and Newark, Delaware. (3) Comprising locations in Adamsville and Birmingham, Alabama; Columbus, Ohio; Indianapolis, Indiana; Memphis and Nashville, Tennessee; Wilmerding and Pittsburgh, Pennsylvania; Buffalo, Rochester and West Seneca, New York; Unionville, Connecticut; West Springfield, Massachusetts; and St. Paul, Minnesota. (4) Comprising locations in Baltimore and Jessup, Maryland; Independence, Ohio; Virginia Beach and Fairfax, Virginia; Charlotte, Raleigh and Durham, North Carolina; and Newnan, Georgia. (5) Comprising locations in Atlanta, Decatur and Kennesaw, Georgia; Ft. Lauderdale, Jacksonville, Miami, Orlando, Longwood, Tampa and Daytona Beach, Florida (6) Comprising locations in Minneapolis and Oakdale, Minnesota; Addison, Thornton, Schaumburg and Glenview, Illinois; and St. Louis, Missouri. (7) Comprising locations in Houston, San Antonio and Austin, Texas; Commerce City, Colorado; Honolulu, Hawaii; Menlo Park, California; and Tacoma and Bremerton, Washington. (8) Comprising locations in Port Coquitlam, British Columbia; Montreal, Quebec; and Winnipeg, Manitoba. (9) Comprising locations in Princeton, Jersey City; Ridgewood, Montclair, Westfield, and West Orange, New Jersey. 7 10 (10) Comprising locations in Greenwich, Madison, Naugatuch, Newington, Norwalk, New Haven, Stratford, Bridgeport and Danbury, Connecticut. (11) Comprising locations in Brooklyn, Manhattan, Queens, Bronx and Staten Island, New York. (12) Comprising locations in Chicago and Glenview, Illinois. (13) Comprising location in Columbus, Ohio. (14) Comprising location in Louisville, Kentucky. (15) Comprising location in Conyers, Georgia. (16) Comprising location in Washington, D.C. (17) Comprising location in Alexandria, Virginia. (18) Comprising locations in Towson and Rockville, Maryland. (19) Comprising locations in Pompano Beach, Miami, Fort Myers, St. Petersburg, Orlando, West Palm Beach, Deerfield Beach and Delray Beach, Florida. (20) Comprising locations in Phoenix and Tucson, Arizona. (21) Excludes 90,000 square feet in current Cincinnati, Ohio office facilities that are sublet to outside parties - portions of this space may revert to the Company beginning in 2000. Includes 36,000 square feet leased for the Company's corporate office facilities. ITEM 3. LEGAL PROCEEDINGS On November 9, 1998, Paul Voet, who is an Executive Vice President and a director of the Company, filed a lawsuit against the Company in the Court of Common Pleas, Hamilton County, Ohio, in connection with the Company's sale of its majority owned subsidiary, National Sanitary Supply Company, alleging that the Company breached his employment agreement due to a material reduction in his title, authority or responsibility. Mr. Voet is seeking a money judgment in the principal amount of $6 million. The Company disputes these claims and believes that the disposition of this matter will not have a material effect on the financial position of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. EXECUTIVE OFFICERS OF THE COMPANY
Name Age Office First Elected - ------------------ --- ------------------------------------ -------------- Edward L. Hutton 80 Chairman and Chief Executive Officer November 3, 1993 (1) Kevin J. McNamara 46 President August 2, 1994 (2)
8 11
Paul C. Voet 53 Executive Vice President May 20, 1991 (3) Timothy S. O'Toole 44 Executive Vice President and May 18, 1992 (4) Treasurer Sandra E. Laney 56 Senior Vice President and Chief November 3, 1993 (5) Administrative Officer Arthur V. Tucker, 50 Vice President and Controller May 20, 1991 (6) Jr.
(1) Mr. E. L. Hutton is the Chairman and Chief Executive Officer of the Company and has held these positions since November 1993. Previously, from April 1970 to November 1993, Mr. E. L. Hutton held the positions of President and Chief Executive Officer of the Company. Mr. E. L. Hutton is the father of Mr. T. C. Hutton, a director and a Vice President of the Company. (2) Mr. K. J. McNamara is President of the Company and has held this position since August 1994. Previously, he served as an Executive Vice President, Secretary and General Counsel of the Company, since November 1993, August 1986 and August 1986, respectively. He previously held the position of Vice President of the Company, from August 1986 to May 1992. (3) Mr. P. C. Voet is an Executive Vice President of the Company and has held this position since May 1991. From May 1988 to November 1993, he served the Company as Vice Chairman. (4) Mr. T. S. O'Toole is an Executive Vice President and the Treasurer of the Company and has held these positions since May 1992 and February 1989, respectively. Mr. O'Toole is Chairman and Chief Executive Officer of Patient Care, Inc. and has held these positions since April 1995. (5) Ms. S. E. Laney is Senior Vice President and the Chief Administrative Officer of the Company and has held these positions since November 1993 and May 1991, respectively. Previously, from May 1984 to November 1993, she held the position of Vice President of the Company. (6) Mr. A. V. Tucker, Jr. is a Vice President and Controller of the Company and has held these positions since February 1989. From May 1983 to February 1989, he held the position of Assistant Controller of the Company. Each executive officer holds office until the annual election at the next annual organizational meeting of the Board of Directors of the Company which is scheduled to be held on May 15, 2000. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Capital Stock (par value $1 per share) is traded on the New York Stock Exchange under the symbol CHE. The range of the high and low sale prices on the New York Stock Exchange and dividends paid per share for each quarter of 1998 and 1999 are set forth below. 9 12 Closing ------- Dividends Paid High Low Per Share - ------------------------------------------------------------------------------- 1999 First Quarter $33 13/16 $25 3/4 $.53 Second Quarter 33 7/8 26 5/16 .53 Third Quarter 33 7/16 29 1/4 .53 Fourth Quarter 30 1/8 24 15/16 .53 1998 First Quarter $42-5/16 $38 $.53 Second Quarter 41-1/4 32-9/16 .53 Third Quarter 34-11/16 25-9/16 .53 Fourth Quarter 34-7/8 28-1/8 .53 In November 1999, the Board of Directors adopted a new dividend policy, whereby future dividends were reduced from $.53 per quarter to $.10 per quarter. Future dividends are necessarily dependent upon the Company's earnings and financial condition, compliance with certain debt covenants and other factors not presently determinable. As of March 17, 2000, there were approximately 4,118 stockholders of record of the Company's Capital Stock. This number only includes stockholders of record and does not include stockholders with shares beneficially held for them in nominee name or within clearinghouse positions of brokers, banks or other institutions. ITEM 6. SELECTED FINANCIAL DATA. The information called for by this Item for the five years ended December 31, 1999 is set forth on pages 28 and 29 of the 1999 Annual Report to Stockholders and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The information called for by this Item is set forth on pages 32 through 35 of the 1999 Annual Report to Stockholders and is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company has an insignificant number of financial instruments held for trading purposes and does not hedge any of its market risks with derivative instruments. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements, together with the report thereon of PricewaterhouseCoopers LLP dated February 1, 2000, appearing on pages 11 through 27 of the 1999 Annual Report to Stockholders, along with the Supplementary Data (Unaudited Summary of Quarterly Results) appearing on page 31, are incorporated herein by reference. 10 13 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The directors of the Company are: Edward L. Hutton Sandra E. Laney Rick L. Arquilla Spencer S. Lee James H. Devlin Kevin J. McNamara 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 The additional information required under this Item with respect to the directors and executive officers is set forth in the Company's 2000 Proxy Statement and in Part I hereof under the caption "Executive Officers of the Registrant" and is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Information required under this Item is set forth in the Company's 2000 Proxy Statement, which is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information required under this Item is set forth in the Company's 2000 Proxy Statement, which is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information required under this Item is set forth in the Company's 2000 Proxy Statement, which is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K. EXHIBITS 3.1 Certificate of Incorporation of Chemed Corporation.* 3.2 By-Laws of Chemed Corporation.* 4.1. Offer to Exchange Chemed Capital Trust Convertible Preferred Securities for Shares of Capital Stock, dated as of December 23, 1999.* 11 14 4.2 Chemed Capital Trust, dated as of December 23, 1999.* 4.3 Amended and Restated Declaration of Trust of Chemed Capital Trust, dated February 7, 2000.* 10.1 Agreement and Plan of Merger among Diversey U.S. Holdings, Inc., D. C. Acquisition Inc., Chemed Corporation and DuBois Chemicals, Inc., dated as of February 25, 1991.* 10.2 Stock Purchase Agreement between Omnicare, Inc. and Chemed Corporation, dated as of August 5, 1992.* 10.3 Agreement and Plan of Merger among National Sanitary Supply Company, Unisource Worldwide, Inc. and TFBD, Inc. dated as of August 11, 1997.* 10.4 1981 Stock Incentive Plan, as amended through May 20, 1991.*,** 10.5 1983 Incentive Stock Option Plan, as amended through May 20, 1991.*,** 10.6 1986 Stock Incentive Plan, as amended through May 20, 1991.*,** 10.7 1988 Stock Incentive Plan, as amended through May 20, 1991.*,** 10.8 1993 Stock Incentive Plan.*,** 10.9 1995 Stock Incentive Plan.*,** 10.10 1997 Stock Incentive Plan.*,** 10.11 1999 Stock Incentive Plan. ** 10.12 1999 Long-Term Employee Incentive Plan. 10.13 Employment Contracts with Executives.*,** 10.14 Amendment to Employment Contracts with Executives.** 10.15 Amendment No. 3 to Employment Contract with James H. Devlin.*,** 10.16 Employment Contracts with John M. Mount and Walter L. Krebs.*,** 10.17 Employment Contract with Lawrence J. Gillis.*,** 10.18 Amendment No. 7 to Employment Agreement with Edward L. Hutton.*,** 10.19 Excess Benefits Plan, as restated and amended, effective April 1, 1997.*,** 10.20 Non-Employee Directors' Deferred Compensation Plan.*,** 10.21 Chemed/Roto-Rooter Savings & Retirement Plan, effective January 1, 1999.*,** 10.22 Stock Purchase Agreement by and Among Banta Corporation, Chemed Corporation and OCR Holding Company as of September 24, 1997.* 10.25 Directors Emeriti Plan.*,** 12 15 10.26 Second Amendment to Split Dollar Agreement with Executives.** 10.27 Split Dollar Agreement - II with James H. Devlin.*,** 10.28 Split Dollar Agreement with Sandra E. Laney.*,** 10.29 Split Dollar Agreement with Executives.*,** 10.30 Split Dollar Agreement with Edward L. Hutton.*,** 10.31 Split Dollar Agreement with Paul C. Voet.*,** 10.32 Split Dollar Agreement with John M. Mount** 10.33 Split Dollar Agreement with Spencer S. Lee** 10.34 Split Dollar Agreement with Rick L. Arquilla** 10.35 Form of Promissory Note under the Executive Stock Purchase Plan.** 13. 1999 Annual Report to Stockholders. 21. Subsidiaries of Chemed Corporation. 23. Consent of Independent Accountants. 24. Powers of Attorney. 27. Financial Data Schedule + * This exhibit is being filed by means of incorporation by reference (see Index to Exhibits on page E-1). Each other exhibit is being filed with this Annual Report on Form 10-K. ** Management contract or compensatory plan or arrangement. + Not filed herewith. FINANCIAL STATEMENT SCHEDULE See Index to Financial Statements and Financial Statement Schedule on page S-1. REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended December 31, 1999. 13 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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 March 29, 2000 By /s/ Edward L. Hutton ---------------------------------- Edward L. Hutton Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Edward L. Hutton Chairman and Chief - ------------------------- Executive Officer and a Edward L. Hutton Director (Principal Executive Officer) /s/ Timothy S. O'Toole Executive Vice President - ------------------------ and Treasurer and a Timothy S. O'Toole Director (Principal Financial Officer) /s/ Arthur V.Tucker,Jr. Vice President and March 29, 2000 - ----------------------- Controller Arthur V. Tucker, Jr. (Principal Accounting Officer) Rick L. Arquilla* Sandra E. Laney* James H. Devlin* Spencer S. Lee* Charles H. Erhart, Jr.* Kevin J. McNamara* Joel F. Gemunder* John M. Mount* --Directors Patrick P. Grace* Donald E. Saunders* Thomas C. Hutton* Paul C. Voet* Walter L. Krebs* George J. Walsh III* - -------------------------------
* Naomi C. Dallob by signing her name hereto signs this document on behalf of each of the persons indicated above pursuant to powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission. March 29, 2000 /s/ Naomi C. Dallob - ----------------------- ---------------------------------- Date Naomi C. Dallob (Attorney-in-Fact)6-14 14 17 CHEMED CORPORATION AND SUBSIDIARY COMPANIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE 1997, 1998 AND 1999
CHEMED CORPORATION CONSOLIDATED FINANCIAL PAGE(s) STATEMENTS AND FINANCIAL STATEMENT SCHEDULE Report of Independent Accountants............................... 11* Statement of Accounting Policies.................................12* Consolidated Statement of Income.................................13* Consolidated Balance Sheet.......................................14* Consolidated Statement of Cash Flows.............................15* Consolidated Statement of Changes in Stockholders' Equity........16* Consolidated Statement of Comprehensive Income...................16* Notes to Financial Statements....................................17-25* Segment Data.....................................................26-27* Report of Independent Accountants on Financial Statement Schedule.......................................................S-2 Schedule II -- Valuation and Qualifying Accounts.................S-3-S-4
* Indicates page numbers in Chemed Corporation 1999 Annual Report to Stockholders. - ------------------------------- The consolidated financial statements of Chemed Corporation listed above, appearing in the 1999 Annual Report to Stockholders, are incorporated herein by reference. The Financial Statement Schedule should be read in conjunction with the consolidated financial statements listed above. Schedules not included have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto as listed above. S-1 18 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Chemed Corporation Our audits of the consolidated financial statements referred to in our report dated February 1, 2000 appearing on page 11 of the 1999 Annual Report to Stockholders of Chemed Corporation (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14 of this Form 10-K. In our opinion, the Financial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP - --------------------------------- PRICEWATERHOUSECOOPERS LLP Cincinnati, Ohio February 1, 2000 S-2 19 SCHEDULE II CHEMED CORPORATION AND SUBSIDIARY COMPANIES VALUATION AND QUALIFYING ACCOUNTS (a) (in thousands) Dr/(Cr)
ADDITIONS ------------------------------------- (Charged) (Charged) Applicable Credited Credited to Balance at to Costs to Other Companies Balance Beginning and Accounts Acquired Deductions at End Description of Period Expenses (b) in Period (c) of Period - -------------------------------------------------------------------------------------------------------------- Allowances for doubtful accounts (d) For the year 1999......... $ (3,601) $(2,235) $ - $ (25) $ 1,307 $ (4,554) ========= ======== ======== ========= ======== ========= For the year 1998......... $ (2,626) $(2,452) $ - $ (15) $ 1,492 $ (3,601) ========= ======== ======== ========= ======= ========= For the year 1997......... $ (1,583) $ (702) $ - $ (974) $ 633 $ (2,626) ========= ======== ======== ========= ======= ========= Allowances for doubtful accounts - notes receivable (e) For the year 1999......... $ (23) $ - $ - $ - $ 23 $ - ========= ======== ======== ========= ======= ========= For the year 1998......... $ (23) $ - $ - $ - $ - $ (23) ========= ======== ======== ========= ======= ========= For the year 1997......... $ (120) $ - $ - $ - $ 97 $ (23) ========= ======== ======== ========= ======= =========
S-3 20
(Charged) (Charged) Applicable Credited Credited to Balance at to Costs to Other Companies Balance Beginning and Accounts Acquired Deductions at End Description of Period Expenses (b) in Period (c) of Period - -------------------------------------------------------------------------------------------------------------- Valuation allowance for available-for-sale securities For the year 1999......... $ 20,406 $ - $(10,525) $ - $ (4,661) $ 5,220 ========= ======== ========= ========= ======== ======== For the year 1998......... $ 30,705 $ - $ 2,290 $ - $(12,589) $ 20,406 ========= ======== ========= ========= ========= ======== For the year 1997......... $ 40,096 $ - $ 2,844 $ - $(12,235) $ 30,705 ========= ======== ========= ========= ========= ========
- ------------------------- (a) Amounts are presented on a continuing operations basis. (b) With respect to the valuation allowance for available-for-sale securities, amounts charged or credited to other accounts comprise decreases or increases in net unrealized holding gains. (c) With respect to allowances for doubtful accounts, deductions include accounts considered uncollectible or written off, payments, companies divested, etc. With respect to valuation allowance for available-for-sale securities, deductions comprise net realized gains on sales of investments. (d) Classified in consolidated balance sheet as a reduction of accounts receivable. (e) Classified in consolidated balance sheet as a reduction of other assets. S-4 21 INDEX TO EXHIBITS
Page Number or Incorporation by Reference -------------------------- Exhibit File No. and Previous Number Filing Date Exhibit No. - ------- ------------ ----------- 3.1 Certificate of Incorporation of Form S-3 4.1 Chemed Corporation Reg. No. 33-44177 11/26/91 3.2 By-Laws of Chemed Corporation Form 10-K 2 3/28/89 4.1 Offer to Exchange Chemed Capital Form T-3 T3E-1 Trust Convertible Trust Preferred 12/23/99 Securities for Shares of Capital Stock, dated as of 12/23/99 4.2 Chemed Capital Trust, dated Schedule 13E-4 (b)(1) as of 12/23/99 12/23/99 4.3 Amended and Restated Declaration Schedule 13E-4A (b)(2) of Trust of Chemed Capital Trust, 2/7/00, Amendment dated February 7, 2000 No. 2 10.1 Agreement and Plan of Merger Form 8-K 1 among Diversey U.S. Holdings, 3/11/91 Inc., D.C. Acquisition Inc., Chemed Corporation and DuBois Chemicals, Inc., dated as of February 25, 1991 10.2 Stock Purchase Agreement between Form 10-K 5 Omnicare, Inc. and Chemed 3/25/93 Corporation dated as of August 5, 1992 10.3 Agreement and Plan of Merger Form 8-K 1 among National Sanitary 10/13/97 Supply Company, Unisource Worldwide, Inc. and TFBD, Inc. 10.4 1981 Stock Incentive Plan, as Form 10- K 7 amended through May 20, 1991 3/27/92 10.5 1983 Incentive Stock Option Plan, Form 10-K 8 as amended through May 20, 1991 3/27/92 10.6 1986 Stock Incentive Plan, as Form 10-K 9 amended through May 20, 1991 3/27/92 10.7 1988 Stock Incentive Plan, as Form 10-K 10 amended through May 20, 1991 3/27/92
22
Page Number or Incorporation by Reference -------------------------- Exhibit File No. and Previous Number Filing Date Exhibit No. - ------- ------------ ----------- 10.8 1993 Stock Incentive Plan Form 10-K 10.8 3/29/94 10.9 1995 Stock Incentive Plan Form 10-K 10.14 3/28/96 10.10 1997 Stock Incentive Plan Form 10-K 10.10 3/27/98 10.11 1999 Stock Incentive Plan * 10.12 1999 Long-Term Employee * Incentive Plan 10.13 Employment Contracts with Form 10-K 10.12 Executives 3/28/89 10.14 Amendment to Employment Contracts with Executives * 10.15 Amendment No. 3 to Employment Form 10-K 10.22 Contract with James H. Devlin 3/27/98 10.16 Employment Contracts with John Form 10-K 10.23 M. Mount and Walter L. Krebs 3/27/98 10.17 Employment Contract with Lawrence Form 10-K 10.24 J. Gillis 3/27/98 10.18 Amendment No. 7 to Employment Form 10-K 10.18 Agreement with Edward L. Hutton 3/27/97 10.19 Excess Benefits Plan, as restated Form 10-K 10.9 and amended, effective April 1, 3/27/98 1997 10.20 Non-Employee Directors' Deferred Form 10-K 10.10 Compensation Plan 3/24/88 10.21 Chemed/Roto-Rooter Savings & Form 10-K 10.25 Retirement Plan, effective 3/25/99 January 1, 1999
2 23
Page Number or Incorporation by Reference -------------------------- Exhibit File No. and Previous Number Filing Date Exhibit No. - ------- ------------ ----------- 10.22 Stock Purchase Plan by and Form 8-K 10.21 among Banta Corporation, Chemed 10/13/97 Corporation and OCR Holding Company 10.25 Directors Emeriti Plan Form 10-Q 10.11 5/12/88 10.26 Second Amendment to Split Dollar * Agreement with Executives 10.27 Split Dollar Agreement - II Form 10-K 10.27 with James H. Devlin 3/25/99 10.28 Split Dollar Agreement with Form 10-K 10.27 Sandra E. Laney 3/25/99 10.29 Split Dollar Agreements Form 10-K 10.15 with Executives 3/28/96 10.30 Split Dollar Agreement with Form 10-K 10.16 Edward L. Hutton 3/28/96 10.31 Split Dollar Agreement with Form 10-K 10.17 Paul C. Voet 3/28/96 10.32 Split Dollar Agreement with * John M. Mount 10.33 Split Dollar Agreement with * Spencer S. Lee 10.34 Split Dollar Agreement with * Rick L. Arquilla 10.35 Form of Promissory Note under * the Executive Stock Purchase Plan 13 1999 Annual Report to Stockholders * 21 Subsidiaries of Chemed Corporation * 23 Consent of Independent Accountants *
3 24 24 Powers of Attorney * 27 Financial Data Schedule * - ----------------------------- * Filed herewith. 4 EX-10.11 2 EXHIBIT 10.11 1 EXHIBIT 10.11 ================================================================================ - -------------------------------------------------------------------------------- CHEMED CORPORATION 1999 STOCK INCENTIVE PLAN MAY 17, 1999 - -------------------------------------------------------------------------------- ================================================================================ 2 CHEMED CORPORATION 1999 STOCK INCENTIVE PLAN 1. PURPOSES: The purposes of this Plan are (a) to secure for the Corporation the benefits of incentives inherent in ownership of Capital Stock by Key Employees, (b) to encourage Key Employees to increase their interest in the future growth and prosperity of the Corporation and to stimulate and sustain constructive and imaginative thinking by Key Employees, (c) to further the identification of interest of those who hold positions of major responsibility in the Corporation and its Subsidiaries with the interests of the Corporation's stockholders, (d) to induce the employment or continued employment of Key Employees and (e) to enable the Corporation to compete with other organizations offering similar or other incentives in obtaining and retaining the services of competent executives. 2. DEFINITIONS: Unless otherwise required by the context, the following terms when used in this Plan shall have the meanings set forth in this Section 2. BOARD OF DIRECTORS: The Board of Directors of the Corporation. CAPITAL STOCK: The Capital Stock of the Corporation, par value $l.00 per share, or such other class of shares or other securities as may be applicable pursuant to the provisions of Section 8. CORPORATION: Chemed Corporation, a Delaware corporation. FAIR MARKET VALUE: As applied to any date, the mean between the high and low sales prices of a share of Capital Stock on the principal stock exchange on which the Corporation is listed, or, if it is not so listed, the mean between the bid and the ask prices of a share of Capital Stock in the over-the-counter market as reported by the National Association of Securities Dealers Automated Quotation System on such date or, if no such sales or prices were made or quoted on such date, on the next preceding date on which there were sales or quotes of Capital Stock on such exchange or market, as the case may be; provided, however, that, if the Capital Stock is not so listed or quoted, Fair Market Value shall be determined in accordance with the method approved by the Compensation/Incentive Committee, and, provided further, if any of the foregoing methods of determining Fair Market Value shall not be consistent with the regulations of the Secretary of the Treasury or his delegate at the time applicable to a Stock Incentive of the type involved, Fair Market Value in the case of such Stock Incentive shall be determined in 3 accordance with such regulations and shall mean the value as so determined. COMPENSATION/INCENTIVE COMMITTEE: The Compensation/Incentive Committee designated to administer this Plan pursuant to the provisions of Section 10. INCENTIVE COMPENSATION: Bonuses, extra and other compensation payable in addition to a salary or other base amount, whether contingent or discretionary or required to be paid pursuant to an agreement, resolution or arrangement, and whether payable currently or on a deferred basis, in cash, Capital Stock or other property, awarded by the Corporation or a Subsidiary prior or subsequent to the date of the approval and adoption of this Plan by the stockholders of the Corporation. KEY EMPLOYEE: An employee of the Corporation or of a Subsidiary who in the opinion of the Compensation/Incentive Committee can contribute significantly to the growth and successful operations of the Corporation or a Subsidiary. The grant of a Stock Incentive to an employee by the Compensation/Incentive Committee shall be deemed a determination by the Compensation/Incentive Committee that such employee is a Key Employee. For the purposes of this Plan, a director or officer of the Corporation or of a Subsidiary shall be deemed an employee regardless of whether or not such director or officer is on the payroll of, or otherwise paid for services by, the Corporation or a Subsidiary. OPTION: An option to purchase shares of Capital Stock. PERFORMANCE UNIT: A unit representing a share of Capital Stock, subject to a Stock Award, the issuance, transfer or retention of which is contingent, in whole or in part, upon attainment of a specified performance objective or objectives, including, without limitation, objectives determined by reference to or changes in (a) the Fair Market Value, book value or earnings per share of Capital Stock, or (b) sales and revenues, income, profits and losses, return on capital employed, or net worth of the Corporation (on a consolidated or unconsolidated basis) or of any one or more of its groups, divisions, Subsidiaries or departments, or (c) a combination of two or more of the foregoing factors. PLAN: The 1999 Stock Incentive Plan herein set forth as the same may from time to time be amended. STOCK AWARD: An issuance or transfer of shares of Capital Stock at the time the Stock Incentive is granted or as soon thereafter as practicable, or an undertaking to issue or 2 4 transfer such shares in the future, including, without limitation, such an issuance, transfer or undertaking with respect to Performance Units. STOCK INCENTIVE: A stock incentive granted under this Plan in one of the forms provided for in Section 3. SUBSIDIARY: A corporation or other form of business association of which shares (or other ownership interests) having 50% or more of the voting power are owned or controlled, directly or indirectly, by the Corporation. 3. GRANTS OF STOCK INCENTIVES: (a) Subject to the provisions of this Plan, the Compensation/Incentive Committee may at any time, or from time to time, grant Stock Incentives under this Plan to, and only to, Key Employees. (b) Stock Incentives may be granted in the following forms: (i) a Stock Award, or (ii) an Option, or (iii) a combination of a Stock Award and an Option. 4. STOCK SUBJECT TO THIS PLAN: (a) Subject to the provisions of paragraph (c) and (d) of this Section 4 and of Section 8, the aggregate number of shares of Capital Stock which may be issued or transferred pursuant to Stock Incentives granted under this Plan shall not exceed 450,000 shares; provided, however, that the maximum aggregate number of shares of Capital Stock which may be issued or transferred pursuant to Stock Incentives in the form of Stock Awards, shall not exceed 135,000 shares. (b) The maximum aggregate number of shares of Capital Stock which may be issued or transferred under the Plan to directors of the Corporation or of a Subsidiary shall not exceed 100,000 shares. (c) Authorized but unissued shares of Capital Stock and shares of Capital Stock held in the treasury, whether acquired by the Corporation specifically for use under this Plan or otherwise, may be used, as the Compensation/Incentive Committee may from time to time determine, for purposes of this Plan, provided, however, that any shares acquired or held by the Corporation for the purposes of this Plan shall, unless and until transferred to a Key Employee in accordance with the terms and conditions of a Stock Incentive, be and at all times remain treasury shares of the Corporation, irrespective of whether such 3 5 shares are entered in a special account for purposes of this Plan, and shall be available for any corporate purpose. (d) If any shares of Capital Stock subject to a Stock Incentive shall not be issued or transferred and shall cease to be issuable or transferable because of the termination, in whole or in part, of such Stock Incentive or for any other reason, or if any such shares shall, after issuance or transfer, be reacquired by the Corporation or a Subsidiary because of an employee's failure to comply with the terms and conditions of a Stock Incentive, the shares not so issued or transferred, or the shares so reacquired by the Corporation or a Subsidiary shall no longer be charged against any of the limitations provided for in paragraphs (a) or (b) of this Section 4 and may again be made subject to Stock Incentives. 5. STOCK AWARDS: Stock Incentives in the form of Stock Awards shall be subject to the following provisions: (a) A Stock Award shall be granted only in payment of Incentive Compensation that has been earned or as Incentive Compensation to be earned, including, without limitation, Incentive Compensation awarded concurrently with or prior to the grant of the Stock Award. (b) For the purposes of this Plan, in determining the value of a Stock Award, all shares of Capital Stock subject to such Stock Award shall be valued at not less than 100 percent of the Fair Market Value of such shares on the date such Stock Award is granted, regardless of whether or when such shares are issued or transferred to the Key Employee and whether or not such shares are subject to restrictions which affect their value. (c) Shares of Capital Stock subject to a Stock Award may be issued or transferred to the Key Employee at the time the Stock Award is granted, or at any time subsequent thereto, or in installments from time to time, as the Compensation/Incentive Committee shall determine. In the event that any such issuance or transfer shall not be made to the Key Employee at the time the Stock Award is granted, the Compensation/Incentive Committee may provide for payment to such Key Employee, either in cash or in shares of Capital Stock from time to time or at the time or times such shares shall be issued or transferred to such Key Employee, of amounts not exceeding the dividends which would have been payable to such Key Employee in respect of such shares (as adjusted under Section 8) if they had been issued or transferred to such Key Employee at the time such Stock Award was granted. Any amount payable in shares of Capital Stock under the terms of a Stock Award may, at the discretion of the Corporation, be paid in cash, on each date on which delivery of shares would otherwise have been made, in an amount equal to the Fair Market Value on 4 6 such date of the shares which would otherwise have been delivered. (d) A Stock Award shall be subject to such terms and conditions, including, without limitation, restrictions on sale or other disposition of the Stock Award or of the shares issued or transferred pursuant to such Stock Award, as the Compensation/Incentive Committee may determine; provided, however, that upon the issuance or transfer of shares pursuant to a Stock Award, the recipient shall, with respect to such shares, be and become a stockholder of the Corporation fully entitled to receive dividends, to vote and to exercise all other rights of a stockholder except to the extent otherwise provided in the Stock Award. Each Stock Award shall be evidenced by a written instrument in such form as the Compensation/Incentive Committee shall determine, provided the Stock Award is consistent with this Plan and incorporates it by reference. 6. OPTIONS: Stock Incentives in the form of Options shall be subject to the following provisions: (a) The maximum aggregate number of Stock Incentives in the form of Options which may be granted to an individual employee of the Corporation or a Subsidiary in any calendar year shall not exceed 50,000 Options. (b) Upon the exercise of an Option, the purchase price shall be paid in cash or, if so provided in the Option or in a resolution adopted by the Compensation/Incentive Committee(and subject to such terms and conditions as are specified in the Option or by the Compensation/Incentive Committee), in shares of Capital Stock or in a combination of cash and such shares. Shares of Capital Stock thus delivered shall be valued at their Fair Market Value on the date of exercise. Subject to the provisions of Section 8, the purchase price per share shall be not less than 100 percent of the Fair Market Value of a share of Capital Stock on the date the Option is granted. (c) Each Option shall be exercisable in full or in part six months after the date the Option is granted, or may become exercisable in one or more installments and at such time or times, as the Compensation/Incentive Committee shall determine. Unless otherwise provided in the Option, an Option, to the extent it is or becomes exercisable, may be exercised at any time in whole or in part until the expiration or termination of the Option. Any term or provision in any outstanding Option specifying when the Option is exercisable or that it be exercisable in installments may be modified at any time during the life of the Option by the Compensation/Incentive Committee, provided, however, no such modification of an outstanding Option shall, without the consent of the optionee, adversely affect any 5 7 Option theretofore granted to him. An Option will become immediately exercisable in full if at any time during the term of the Option the Corporation obtains actual knowledge that any of the following events has occurred, irrespective of the applicability of any limitation on the number of shares then exercisable under the Option: (1) any person within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "1934 Act"), other than the Corporation or any of its subsidiaries, has become the beneficial owner, within the meaning of Rule 13d-3 under the 1934 Act, of 30 percent or more of the combined voting power of the Corporation's then outstanding voting securities; (2) the expiration of a tender offer or exchange offer, other than an offer by the Corporation, pursuant to which 20 percent or more of the shares of the Corporation's Capital Stock have been purchased; (3) the stockholders of the Corporation have approved (i) an agreement to merge or consolidate with or into another corporation and the Corporation is not the surviving corporation or (ii) an agreement to sell or otherwise dispose of all or substantially all of the assets of the Corporation (including a plan of liquidation); or (4) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors cease for any reason to constitute at least a majority thereof, unless the nomination for the election by the Corporation's stockholders of each new director was approved by a vote of at least one-half of the persons who were directors at the beginning of the two-year period. (d) Each Option shall be exercisable during the life of the optionee only by him or a transferee or assignee permitted by paragraph (g) of this Section (6) and, after his death, only by his estate or by a person who acquired the right to exercise the Option pursuant to one of the provisions of paragraph (g) of this Section (6). An Option, to the extent that it shall not have been exercised, shall terminate when the optionee ceases to be an employee of the Corporation or a Subsidiary, unless he ceases to be an employee because of his resignation with the consent of the Compensation/Incentive Committee (which consent may be given before or after resignation), or by reason of his death, incapacity or retirement under a retirement plan of the Corporation or a Subsidiary. Except as provided in the next sentence, if the optionee ceases to be an employee by reason of such resignation, the Option shall terminate three months after he ceases to be an employee. If the optionee ceases to be an employee by reason of such death, incapacity or retirement, or if he should die during the three-month period referred to in the preceding sentence, the Option shall terminate fifteen months after he ceases to be an employee. Where an Option is exercised more than three months after the optionee ceased to be an employee, the Option may be exercised only to the extent it could have been exercised three months after he ceased to be an employee. A leave of absence for military or governmental 6 8 service or for other purposes shall not, if approved by the Compensation/Incentive Committee, be deemed a termination of employment within the meaning of this paragraph (d); provided, however, that an Option may not be exercised during any such leave of absence. Notwithstanding the foregoing provisions of this paragraph (d) or any other provision of this Plan, no Option shall be exercisable after expiration of the term for which the Option was granted, which shall in no event exceed ten years. Where an Option is granted for a term of less than ten years, the Compensation/Incentive Committee, may, at any time prior to the expiration of the Option, extend its term for a period ending not later than ten years from the date the Option was granted. (e) Options shall be granted for such lawful consideration as the Compensation/Incentive Committee shall determine. (f) Neither the Corporation nor any Subsidiary may directly or indirectly lend any money to any person for the purpose of assisting him to purchase or carry shares of Capital Stock issued or transferred upon the exercise of an Option. (g) No Option nor any right thereunder may be assigned or transferred by the optionee except: (i) by will or the laws of descent and distribution; (ii) pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, or by the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder; (iii) by an optionee who, at the time of the transfer, is not subject to the provisions of Section 16 of the 1934 Act, provided such transfer is to, or for the benefit of (including but not limited to trusts for the benefit of), the optionee's spouse or lineal descendants of the optionee's parents; or (iv) by an optionee who, at the time of the transfer, is subject to the provisions of Section 16 of the 1934 Act, to the extent, if any, such transfer would be permitted under Securities and Exchange Commission Rule 16b-3 or any successor rule thereto, as such rule or any successor rule thereto may be in effect at the time of the transfer. If so provided in the Option or if so authorized by the Compensation/Incentive Committee and subject to such terms and conditions as are specified in the Option or by the Compensation/Incentive Committee, the Corporation may, upon or 7 9 without the request of the holder of the Option and at any time or from time to time, cancel all or a portion of the Option then subject to exercise and either (i) pay the holder an amount of money equal to the excess, if any, of the Fair Market Value, at such time or times, of the shares subject to the portion of the Option so canceled over the aggregate purchase price of such shares, or (ii) issue or transfer shares of Capital Stock to the holder with a Fair Market Value, at such time or times, equal to such excess. (h) Each Option shall be evidenced by a written instrument, which shall contain such terms and conditions, and shall be in such form, as the Compensation/Incentive Committee may determine, provided the Option is consistent with this Plan and incorporates it by reference. Notwithstanding the preceding sentence, an Option, if so granted by the Compensation/Incentive Committee, may include restrictions and limitations in addition to those provided for in this Plan. (i) Any federal, state or local withholding taxes payable by an optionee or awardee upon the exercise of an Option or upon the removal of restrictions of a Stock Award shall be paid in cash or in such other form as the Compensation/Incentive Committee may authorize from time to time, including the surrender of shares of Capital Stock or the withholding of shares of Capital Stock to be issued to the optionee or awardee. All such shares so surrendered or withheld shall be valued at Fair Market Value on the date such are surrendered to the Corporation or authorized to be withheld. 7. COMBINATIONS OF STOCK AWARDS AND OPTIONS: Stock Incentives authorized by paragraph (b)(iii) of Section 3 in the form of combinations of Stock Awards and Options shall be subject to the following provisions: (a) A Stock Incentive may be a combination of any form of Stock Award with any form of Option; provided, however, that the terms and conditions of such Stock Incentive pertaining to a Stock Award are consistent with Section 5 and the terms and conditions of such Stock Incentive pertaining to an Option are consistent with Section 6. (b) Such combination Stock Incentive shall be subject to such other terms and conditions as the Compensation/Incentive Committee may determine, including, without limitation, a provision terminating in whole or in part a portion thereof upon the exercise in whole or in part of another portion thereof. Such combination Stock Incentive shall be evidenced by a written instrument in such form as the Compensation/Incentive Committee shall determine, provided it is consistent with this Plan and incorporates it by reference. 8 10 8. ADJUSTMENT PROVISIONS: In the event that any recapitalization, or reclassification, split-up or consolidation of shares of Capital Stock shall be effected, or the outstanding shares of Capital Stock are, in connection with a merger or consolidation of the Corporation or a sale by the Corporation of all or a part of its assets, exchanged for a different number or class of shares of stock or other securities of the Corporation or for shares of the stock or other securities of any other corporation, or a record date for determination of holders of Capital Stock entitled to receive a dividend payable in Capital Stock shall occur (a) the number and class of shares or other securities that may be issued or transferred pursuant to Stock Incentives, (b) the number and class of shares or other securities which have not been issued or transferred under outstanding Stock Incentives, (c) the purchase price to be paid per share or other security under outstanding Options, and (d) the price to be paid per share or other security by the Corporation or a Subsidiary for shares or other securities issued or transferred pursuant to Stock Incentives which are subject to a right of the Corporation or a Subsidiary to reacquire such shares or other securities, shall in each case be equitably adjusted. 9. TERM: This Plan shall be deemed adopted and shall become effective on the date it is approved and adopted by the stockholders of the Corporation. No Stock Incentives shall be granted under this Plan after May 17, 2009. 10. ADMINISTRATION: (a) The Plan shall be administered by the Compensation/Incentive Committee, which shall consist of no fewer than three persons designated by the Board of Directors. Grants of Stock Incentives may be granted by the Compensation/Incentive Committee either in or without consultation with employees, but, anything in this Plan to the contrary notwithstanding, the Compensation/Incentive Committee shall have full authority to act in the matter of selection of all Key Employees and in determining the number of Stock Incentives to be granted to them. (b) The Compensation/Incentive Committee may establish such rules and regulations, not inconsistent with the provisions of this Plan, as it deems necessary to determine eligibility to participate in this Plan and for the proper administration of this Plan, and may amend or revoke any rule or regulation so established. The Compensation/Incentive Committee may make such determinations and interpretations under or in connection with this Plan as it deems necessary or advisable. All such rules, regulations, determinations and interpretations shall be binding and conclusive upon the Corporation, its Subsidiaries, its stockholders and all employees, and upon their respective legal 9 11 representatives, beneficiaries, successors and assigns and upon all other persons claiming under or through any of them. (c) Members of the Board of Directors and members of the Compensation/Incentive Committee acting under this Plan shall be fully protected in relying in good faith upon the advice of counsel and shall incur no liability except for gross negligence or willful misconduct in the performance of their duties. 11. GENERAL PROVISIONS: (a) Nothing in this Plan nor in any instrument executed pursuant hereto shall confer upon any employee any right to continue in the employ of the Corporation or a Subsidiary, or shall affect the right of the Corporation or of a Subsidiary to terminate the employment of any employee with or without cause. (b) No shares of Capital Stock shall be issued or transferred pursuant to a Stock Incentive unless and until all legal requirements applicable to the issuance or transfer of such shares, in the opinion of counsel to the Corporation, have been complied with. In connection with any such issuance or transfer, the person acquiring the shares shall, if requested by the Corporation, give assurances, satisfactory to counsel to the Corporation, that the shares are being acquired for investment and not with a view to resale or distribution thereof and assurances in respect of such other matters as the Corporation or a Subsidiary may deem desirable to assure compliance with all applicable legal requirements. (c) No employee (individually or as a member of a group), and no beneficiary or other person claiming under or through him, shall have any right, title or interest in or to any shares of Capital Stock allocated or reserved for the purposes of this Plan or subject to any Stock Incentive except as to such shares of Capital Stock, if any, as shall have been issued or transferred to him. (d) The Corporation or a Subsidiary may, with the approval of the Compensation/Incentive Committee, enter into an agreement or other commitment to grant a Stock Incentive in the future to a person who is or will be a Key Employee at the time of grant, and, notwithstanding any other provision of this Plan, any such agreement or commitment shall not be deemed the grant of a Stock Incentive until the date on which the Company takes action to implement such agreement or commitment. (e) In the case of a grant of a Stock Incentive to an employee of a Subsidiary, such grant may, if the Compensation/Incentive Committee so directs, be implemented by the Corporation issuing or transferring the shares, if any, 10 12 covered by the Stock Incentive to the Subsidiary, for such lawful consideration as the Compensation/Incentive Committee may specify, upon the condition or understanding that the Subsidiary will transfer the shares to the employee in accordance with the terms of the Stock Incentive specified by the Compensation/Incentive Committee pursuant to the provisions of this Plan. Notwithstanding any other provision hereof, such Stock Incentive may be issued by and in the name of the Subsidiary and shall be deemed granted on the date it is approved by the Compensation/Incentive Committee, on the date it is delivered by the Subsidiary or on such other date between said two dates, as the Compensation/Incentive Committee shall specify. (f) The Corporation or a Subsidiary may make such provisions as it may deem appropriate for the withholding of any taxes which the Corporation or a Subsidiary determines it is required to withhold in connection with any Stock Incentive. (g) Nothing in this Plan is intended to be a substitute for, or shall preclude or limit the establishment or continuation of, any other plan, practice or arrangement for the payment of compensation or fringe benefits to employees generally, or to any class or group of employees, which the Corporation or any Subsidiary or other affiliate now has or may hereafter lawfully put into effect, including, without limitation, any retirement, pension, group insurance, stock purchase, stock bonus or stock option plan. 12. AMENDMENTS AND DISCONTINUANCE: (a) This Plan may be amended by the Board of Directors upon the recommendation of the Compensation/Incentive Committee, provided that, without the approval of the stockholders of the Corporation, no amendment shall be made which (i) increases the aggregate number of shares of Capital Stock that may be issued or transferred pursuant to Stock Incentives as provided in paragraph (a) of Section 4, (ii) increases the maximum aggregate number of shares of Capital Stock that may be issued or transferred under the Plan to directors of the Corporation or of a Subsidiary as provided in paragraph (b) of Section 4, (iii) increases the maximum aggregate number of Stock Incentives, in the form of Options, which may be granted to an individual employee as provided in paragraph (a) of Section 6, (iv) withdraws the administration of this Plan from the Compensation/Incentive Committee, (v) permits any person who is not at the time a Key Employee of the Corporation or of a Subsidiary to be granted a Stock Incentive, (vi) permits any Option to be exercised more than ten years after the date it is granted, (vii) amends Section 9 to extend the date set forth therein or (viii) amends this Section 12. 11 13 (b) Notwithstanding paragraph (a) of this Section 12, the Board of Directors may amend the Plan to take into account changes in applicable securities laws, federal income tax laws and other applicable laws. Should the provisions of Rule 16b-3, or any successor rule, under the Securities Exchange Act of 1934 be amended, the Board of Directors may amend the Plan in accordance therewith. (c) The Board of Directors may by resolution adopted by a majority of the entire Board of Directors discontinue this Plan. (d) No amendment or discontinuance of this Plan by the Board of Directors or the stockholders of the Corporation shall, without the consent of the employee, adversely affect any Stock Incentive theretofore granted to him. 12 EX-10.12 3 EXHIBIT 10.12 1 EXHIBIT 10.12 ================================================================================ - -------------------------------------------------------------------------------- CHEMED CORPORATION 1999 LONG-TERM EMPLOYEE INCENTIVE PLAN MAY 17, 1999 - -------------------------------------------------------------------------------- ================================================================================ 2 CHEMED CORPORATION 1999 LONG-TERM EMPLOYEE INCENTIVE PLAN 1. PURPOSES: The purposes of this Plan are (a) to secure for the Corporation the benefits of incentives inherent in ownership of Capital Stock by Employees, (b) to encourage Employees to increase their interest in the future growth and prosperity of the Corporation and to stimulate and sustain constructive and imaginative thinking by Employees, (c) to further the identification of interest of employees of the Corporation and its Subsidiaries with the interests of the Corporation's stockholders, (d) to induce the employment or continued employment of Employees and (e) to enable the Corporation to compete with other organizations offering similar or other incentives in obtaining and retaining the services of employees. 2. DEFINITIONS: Unless otherwise required by the context, the following terms when used in this Plan shall have the meanings set forth in this Section 2. BOARD OF DIRECTORS: The Board of Directors of the Corporation. CAPITAL STOCK: The Capital Stock of the Corporation, par value $l.00 per share, or such other class of shares or other securities as may be applicable pursuant to the provisions of Section 8. CORPORATION: Chemed Corporation, a Delaware corporation. FAIR MARKET VALUE: As applied to any date, the mean between the high and low sales prices of a share of Capital Stock on the principal stock exchange on which the Corporation is listed, or, if it is not so listed, the mean between the bid and the ask prices of a share of Capital Stock in the over-the-counter market as reported by the National Association of Securities Dealers Automated Quotation System on such date or, if no such sales or prices were made or quoted on such date, on the next preceding date on which there were sales or quotes of Capital Stock on such exchange or market, as the case may be; provided, however, that, if the Capital Stock is not so listed or quoted, Fair Market Value shall be determined in accordance with the method approved by the Compensation/Incentive Committee, and, provided further, if any of the foregoing methods of determining Fair Market Value shall not be consistent with the regulations of the Secretary of the Treasury or his delegate at the time applicable to a Stock Incentive of the type involved, Fair Market Value in the case of such Stock Incentive shall be determined in 3 accordance with such regulations and shall mean the value as so determined. COMPENSATION/INCENTIVE COMMITTEE: The Compensation/Incentive Committee designated to administer this Plan pursuant to the provisions of Section 10. INCENTIVE COMPENSATION: Bonuses, extra and other compensation payable in addition to a salary or other base amount, whether contingent or discretionary or required to be paid pursuant to an agreement, resolution or arrangement, and whether payable currently or on a deferred basis, in cash, Capital Stock or other property, awarded by the Corporation or a Subsidiary prior or subsequent to the date of the approval and adoption of this Plan by the stockholders of the Corporation. EMPLOYEE: An employee of the Corporation or of a Subsidiary who in the opinion of the Compensation/Incentive Committee can contribute significantly to the growth and successful operations of the Corporation or a Subsidiary. The grant of a Stock Incentive to an employee by the Compensation/ Incentive Committee shall be deemed a determination by the Compensation/Incentive Committee that such employee is an Employee. For the purposes of this Plan, a director or officer of the Corporation or of a Subsidiary shall not be deemed an Employee. OPTION: An option to purchase shares of Capital Stock. PERFORMANCE UNIT: A unit representing a share of Capital Stock, subject to a Stock Award, the issuance, transfer or retention of which is contingent, in whole or in part, upon attainment of a specified performance objective or objectives, including, without limitation, objectives determined by reference to or changes in (a) the Fair Market Value, book value or earnings per share of Capital Stock, or (b) sales and revenues, income, profits and losses, return on capital employed, or net worth of the Corporation (on a consolidated or unconsolidated basis) or of any one or more of its groups, divisions, Subsidiaries or departments, or (c) a combination of two or more of the foregoing factors. PLAN: The 1999 Long-Term Employee Incentive Plan herein set forth as the same may from time to time be amended. STOCK AWARD: An issuance or transfer of shares of Capital Stock at the time the Stock Incentive is granted or as soon thereafter as practicable, or an undertaking to issue or transfer such shares in the future, including, without 2 4 limitation, such an issuance, transfer or undertaking with respect to Performance Units. STOCK INCENTIVE: A stock incentive granted under this Plan in one of the forms provided for in Section 3. SUBSIDIARY: A corporation or other form of business association of which shares (or other ownership interests) having 50% or more of the voting power are owned or controlled, directly or indirectly, by the Corporation. 3. GRANTS OF STOCK INCENTIVES: (a) Subject to the provisions of this Plan, the Compensation/Incentive Committee may at any time, or from time to time, grant Stock Incentives under this Plan to, and only to, Employees. (b) Stock Incentives may be granted in the following forms: (i) a Stock Award, or (ii) an Option, or (iii) a combination of a Stock Award and an Option. 4. STOCK SUBJECT TO THIS PLAN: (a) Subject to the provisions of paragraph (c) and (d) of this Section 4 and of Section 8, the aggregate number of shares of Capital Stock which may be issued or transferred pursuant to Stock Incentives granted under this Plan shall not exceed 250,000 shares; provided, however, that the maximum aggregate number of shares of Capital Stock which may be issued or transferred pursuant to Stock Incentives in the form of Stock Awards, shall not exceed 135,000 shares. (b) Authorized but unissued shares of Capital Stock and shares of Capital Stock held in the treasury, whether acquired by the Corporation specifically for use under this Plan or otherwise, may be used, as the Compensation/Incentive Committee may from time to time determine, for purposes of this Plan, provided, however, that any shares acquired or held by the Corporation for the purposes of this Plan shall, unless and until transferred to an Employee in accordance with the terms and conditions of a Stock Incentive, be and at all times remain treasury shares of the Corporation, irrespective of whether such shares are entered in a special account for purposes of this Plan, and shall be available for any corporate purpose. (c) If any shares of Capital Stock subject to a Stock Incentive shall not be issued or transferred and shall cease to 3 5 be issuable or transferable because of the termination, in whole or in part, of such Stock Incentive or for any other reason, or if any such shares shall, after issuance or transfer, be reacquired by the Corporation or a Subsidiary because of an Employee's failure to comply with the terms and conditions of a Stock Incentive, the shares not so issued or transferred, or the shares so reacquired by the Corporation or a Subsidiary shall no longer be charged against any of the limitations provided for in paragraphs (a) or (b) of this Section 4 and may again be made subject to Stock Incentives. 5. STOCK AWARDS: Stock Incentives in the form of Stock Awards shall be subject to the following provisions: (a) A Stock Award shall be granted only in payment of Incentive Compensation that has been earned or as Incentive Compensation to be earned, including, without limitation, Incentive Compensation awarded concurrently with or prior to the grant of the Stock Award. (b) For the purposes of this Plan, in determining the value of a Stock Award, all shares of Capital Stock subject to such Stock Award shall be valued at not less than 100 percent of the Fair Market Value of such shares on the date such Stock Award is granted, regardless of whether or when such shares are issued or transferred to the Employee and whether or not such shares are subject to restrictions which affect their value. (c) Shares of Capital Stock subject to a Stock Award may be issued or transferred to the Employee at the time the Stock Award is granted, or at any time subsequent thereto, or in installments from time to time, as the Compensation/Incentive Committee shall determine. In the event that any such issuance or transfer shall not be made to the Employee at the time the Stock Award is granted, the Compensation/Incentive Committee may provide for payment to such Employee, either in cash or in shares of Capital Stock from time to time or at the time or times such shares shall be issued or transferred to such Employee, of amounts not exceeding the dividends which would have been payable to such Employee in respect of such shares (as adjusted under Section 8) if they had been issued or transferred to such Employee at the time such Stock Award was granted. Any amount payable in shares of Capital Stock under the terms of a Stock Award may, at the discretion of the Corporation, be paid in cash, on each date on which delivery of shares would otherwise have been made, in an amount equal to the Fair Market Value on such date of the shares which would otherwise have been delivered. (d) A Stock Award shall be subject to such terms and conditions, including, without limitation, restrictions on sale 4 6 or other disposition of the Stock Award or of the shares issued or transferred pursuant to such Stock Award, as the Compensation/Incentive Committee may determine; provided, however, that upon the issuance or transfer of shares pursuant to a Stock Award, the recipient shall, with respect to such shares, be and become a stockholder of the Corporation fully entitled to receive dividends, to vote and to exercise all other rights of a stockholder except to the extent otherwise provided in the Stock Award. Each Stock Award shall be evidenced by a written instrument in such form as the Compensation/Incentive Committee shall determine, provided the Stock Award is consistent with this Plan and incorporates it by reference. 6. OPTIONS: Stock Incentives in the form of Options shall be subject to the following provisions: (a) The maximum aggregate number of Stock Incentives in the form of Options which may be granted to an individual Employee in any calendar year shall not exceed 25,000 Options. (b) Upon the exercise of an Option, the purchase price shall be paid in cash or, if so provided in the Option or in a resolution adopted by the Compensation/Incentive Committee(and subject to such terms and conditions as are specified in the Option or by the Compensation/Incentive Committee), in shares of Capital Stock or in a combination of cash and such shares. Shares of Capital Stock thus delivered shall be valued at their Fair Market Value on the date of exercise. Subject to the provisions of Section 8, the purchase price per share shall be not less than 100 percent of the Fair Market Value of a share of Capital Stock on the date the Option is granted. (c) Each Option shall be exercisable in full or in part six months after the date the Option is granted, or may become exercisable in one or more installments and at such time or times, as the Compensation/Incentive Committee shall determine. Unless otherwise provided in the Option, an Option, to the extent it is or becomes exercisable, may be exercised at any time in whole or in part until the expiration or termination of the Option. Any term or provision in any outstanding Option specifying when the Option is exercisable or that it be exercisable in installments may be modified at any time during the life of the Option by the Compensation/Incentive Committee, provided, however, no such modification of an outstanding Option shall, without the consent of the optionee, adversely affect any Option theretofore granted to him. An Option will become immediately exercisable in full if at any time during the term of the Option the Corporation obtains actual knowledge that any of the following events has occurred, irrespective of the applicability of any limitation on the number of shares then exercisable under the Option: (1) any person within the meaning 5 7 of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the "1934 Act"), other than the Corporation or any of its subsidiaries, has become the beneficial owner, within the meaning of Rule 13d-3 under the 1934 Act, of 30 percent or more of the combined voting power of the Corporation's then outstanding voting securities; (2) the expiration of a tender offer or exchange offer, other than an offer by the Corporation, pursuant to which 20 percent or more of the shares of the Corporation's Capital Stock have been purchased; (3) the stockholders of the Corporation have approved (i) an agreement to merge or consolidate with or into another corporation and the Corporation is not the surviving corporation or (ii) an agreement to sell or otherwise dispose of all or substantially all of the assets of the Corporation (including a plan of liquidation); or (4) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors cease for any reason to constitute at least a majority thereof, unless the nomination for the election by the Corporation's stockholders of each new director was approved by a vote of at least one-half of the persons who were directors at the beginning of the two-year period. (d) Each Option shall be exercisable during the life of the optionee only by him or a transferee or assignee permitted by paragraph (g) of this Section (6) and, after his death, only by his estate or by a person who acquired the right to exercise the Option pursuant to one of the provisions of paragraph (g) of this Section (6). An Option, to the extent that it shall not have been exercised, shall terminate when the optionee ceases to be an employee of the Corporation or a Subsidiary, unless he ceases to be an employee because of his resignation with the consent of the Compensation/Incentive Committee (which consent may be given before or after resignation), or by reason of his death, incapacity or retirement under a retirement plan of the Corporation or a Subsidiary. Except as provided in the next sentence, if the optionee ceases to be an employee by reason of such resignation, the Option shall terminate three months after he ceases to be an employee. If the optionee ceases to be an employee by reason of such death, incapacity or retirement, or if he should die during the three-month period referred to in the preceding sentence, the Option shall terminate fifteen months after he ceases to be an employee. Where an Option is exercised more than three months after the optionee ceased to be an employee, the Option may be exercised only to the extent it could have been exercised three months after he ceased to be an employee. A leave of absence for military or governmental service or for other purposes shall not, if approved by the Compensation/Incentive Committee, be deemed a termination of employment within the meaning of this paragraph (d); provided, however, that an Option may not be exercised during any such leave of absence. Notwithstanding the foregoing provisions of this paragraph (d) or any other provision of this Plan, no Option 6 8 shall be exercisable after expiration of the term for which the Option was granted, which shall in no event exceed ten years. Where an Option is granted for a term of less than ten years, the Compensation/Incentive Committee, may, at any time prior to the expiration of the Option, extend its term for a period ending not later than ten years from the date the Option was granted. (e) Options shall be granted for such lawful consideration as the Compensation/Incentive Committee shall determine. (f) Neither the Corporation nor any Subsidiary may directly or indirectly lend any money to any person for the purpose of assisting him to purchase or carry shares of Capital Stock issued or transferred upon the exercise of an Option. (g) No Option nor any right thereunder may be assigned or transferred by the optionee except: (i) by will or the laws of descent and distribution; (ii) pursuant to a qualified domestic relations order as defined by the Internal Revenue Code of 1986, as amended, or by the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder; (iii) by an optionee who, at the time of the transfer, is not subject to the provisions of Section 16 of the 1934 Act, provided such transfer is to, or for the benefit of (including but not limited to trusts for the benefit of), the optionee's spouse or lineal descendants of the optionee's parents; or (iv) by an optionee who, at the time of the transfer, is subject to the provisions of Section 16 of the 1934 Act, to the extent, if any, such transfer would be permitted under Securities and Exchange Commission Rule 16b-3 or any successor rule thereto, as such rule or any successor rule thereto may be in effect at the time of the transfer. If so provided in the Option or if so authorized by the Compensation/Incentive Committee and subject to such terms and conditions as are specified in the Option or by the Compensation/Incentive Committee, the Corporation may, upon or without the request of the holder of the Option and at any time or from time to time, cancel all or a portion of the Option then subject to exercise and either (i) pay the holder an amount of money equal to the excess, if any, of the Fair Market Value, at such time or times, of the shares subject to the portion of the 7 9 Option so canceled over the aggregate purchase price of such shares, or (ii) issue or transfer shares of Capital Stock to the holder with a Fair Market Value, at such time or times, equal to such excess. (h) Each Option shall be evidenced by a written instrument, which shall contain such terms and conditions, and shall be in such form, as the Compensation/Incentive Committee may determine, provided the Option is consistent with this Plan and incorporates it by reference. Notwithstanding the preceding sentence, an Option, if so granted by the Compensation/Incentive Committee, may include restrictions and limitations in addition to those provided for in this Plan. (i) Any federal, state or local withholding taxes payable by an optionee or awardee upon the exercise of an Option or upon the removal of restrictions of a Stock Award shall be paid in cash or in such other form as the Compensation/Incentive Committee may authorize from time to time, including the surrender of shares of Capital Stock or the withholding of shares of Capital Stock to be issued to the optionee or awardee. All such shares so surrendered or withheld shall be valued at Fair Market Value on the date such are surrendered to the Corporation or authorized to be withheld. 7. COMBINATIONS OF STOCK AWARDS AND OPTIONS: Stock Incentives authorized by paragraph (b)(iii) of Section 3 in the form of combinations of Stock Awards and Options shall be subject to the following provisions: (a) A Stock Incentive may be a combination of any form of Stock Award with any form of Option; provided, however, that the terms and conditions of such Stock Incentive pertaining to a Stock Award are consistent with Section 5 and the terms and conditions of such Stock Incentive pertaining to an Option are consistent with Section 6. (b) Such combination Stock Incentive shall be subject to such other terms and conditions as the Compensation/Incentive Committee may determine, including, without limitation, a provision terminating in whole or in part a portion thereof upon the exercise in whole or in part of another portion thereof. Such combination Stock Incentive shall be evidenced by a written instrument in such form as the Compensation/Incentive Committee shall determine, provided it is consistent with this Plan and incorporates it by reference. 8. ADJUSTMENT PROVISIONS: In the event that any recapitalization, or reclassification, split-up or consolidation of shares of Capital Stock shall be effected, or the outstanding shares of Capital Stock are, in connection with a merger or 8 10 consolidation of the Corporation or a sale by the Corporation of all or a part of its assets, exchanged for a different number or class of shares of stock or other securities of the Corporation or for shares of the stock or other securities of any other corporation, or a record date for determination of holders of Capital Stock entitled to receive a dividend payable in Capital Stock shall occur (a) the number and class of shares or other securities that may be issued or transferred pursuant to Stock Incentives, (b) the number and class of shares or other securities which have not been issued or transferred under outstanding Stock Incentives, (c) the purchase price to be paid per share or other security under outstanding Options, and (d) the price to be paid per share or other security by the Corporation or a Subsidiary for shares or other securities issued or transferred pursuant to Stock Incentives which are subject to a right of the Corporation or a Subsidiary to reacquire such shares or other securities, shall in each case be equitably adjusted. 9. TERM: This Plan shall be deemed adopted and shall become effective on May 17, 1999. No Stock Incentives shall be granted under this Plan after May 17, 2009. 10. ADMINISTRATION: (a) The Plan shall be administered by the Compensation/Incentive Committee, which shall consist of no fewer than three persons designated by the Board of Directors. Grants of Stock Incentives may be granted by the Compensation/Incentive Committee either in or without consultation with employees, but, anything in this Plan to the contrary notwithstanding, the Compensation/Incentive Committee shall have full authority to act in the matter of selection of all Employees and in determining the number of Stock Incentives to be granted to them. (b) The Compensation/Incentive Committee may establish such rules and regulations, not inconsistent with the provisions of this Plan, as it deems necessary to determine eligibility to participate in this Plan and for the proper administration of this Plan, and may amend or revoke any rule or regulation so established. The Compensation/Incentive Committee may make such determinations and interpretations under or in connection with this Plan as it deems necessary or advisable. All such rules, regulations, determinations and interpretations shall be binding and conclusive upon the Corporation, its Subsidiaries, its stockholders and all employees, and upon their respective legal representatives, beneficiaries, successors and assigns and upon all other persons claiming under or through any of them. (c) Members of the Board of Directors and members of the Compensation/Incentive Committee acting under this Plan shall 9 11 be fully protected in relying in good faith upon the advice of counsel and shall incur no liability except for gross negligence or willful misconduct in the performance of their duties. 11. GENERAL PROVISIONS: (a) Nothing in this Plan nor in any instrument executed pursuant hereto shall confer upon any employee any right to continue in the employ of the Corporation or a Subsidiary, or shall affect the right of the Corporation or of a Subsidiary to terminate the employment of any employee with or without cause. (b) No shares of Capital Stock shall be issued or transferred pursuant to a Stock Incentive unless and until all legal requirements applicable to the issuance or transfer of such shares, in the opinion of counsel to the Corporation, have been complied with. In connection with any such issuance or transfer, the person acquiring the shares shall, if requested by the Corporation, give assurances, satisfactory to counsel to the Corporation, that the shares are being acquired for investment and not with a view to resale or distribution thereof and assurances in respect of such other matters as the Corporation or a Subsidiary may deem desirable to assure compliance with all applicable legal requirements. (c) No employee (individually or as a member of a group), and no beneficiary or other person claiming under or through him, shall have any right, title or interest in or to any shares of Capital Stock allocated or reserved for the purposes of this Plan or subject to any Stock Incentive except as to such shares of Capital Stock, if any, as shall have been issued or transferred to him. (d) The Corporation or a Subsidiary may, with the approval of the Compensation/Incentive Committee, enter into an agreement or other commitment to grant a Stock Incentive in the future to a person who is or will be an Employee at the time of grant, and, notwithstanding any other provision of this Plan, any such agreement or commitment shall not be deemed the grant of a Stock Incentive until the date on which the Company takes action to implement such agreement or commitment. (e) In the case of a grant of a Stock Incentive to an employee of a Subsidiary, such grant may, if the Compensation/Incentive Committee so directs, be implemented by the Corporation issuing or transferring the shares, if any, covered by the Stock Incentive to the Subsidiary, for such lawful consideration as the Compensation/Incentive Committee may specify, upon the condition or understanding that the Subsidiary will transfer the shares to the employee in accordance with the terms of the Stock Incentive specified by the 10 12 Compensation/Incentive Committee pursuant to the provisions of this Plan. Notwithstanding any other provision hereof, such Stock Incentive may be issued by and in the name of the Subsidiary and shall be deemed granted on the date it is approved by the Compensation/Incentive Committee, on the date it is delivered by the Subsidiary or on such other date between said two dates, as the Compensation/Incentive Committee shall specify. (f) The Corporation or a Subsidiary may make such provisions as it may deem appropriate for the withholding of any taxes which the Corporation or a Subsidiary determines it is required to withhold in connection with any Stock Incentive. (g) Nothing in this Plan is intended to be a substitute for, or shall preclude or limit the establishment or continuation of, any other plan, practice or arrangement for the payment of compensation or fringe benefits to employees generally, or to any class or group of employees, which the Corporation or any Subsidiary or other affiliate now has or may hereafter lawfully put into effect, including, without limitation, any retirement, pension, group insurance, stock purchase, stock bonus or stock option plan. 12. AMENDMENTS AND DISCONTINUANCE: (a) This Plan may be amended by the Board of Directors upon the recommendation of the Compensation/Incentive Committee, provided that, without the approval of the stockholders of the Corporation, no amendment shall be made which (i) increases the aggregate number of shares of Capital Stock that may be issued or transferred pursuant to Stock Incentives as provided in paragraph (a) of Section 4, (ii) increases the maximum aggregate number of Stock Incentives, in the form of Options, which may be granted to an individual employee as provided in paragraph (a) of Section 6, (iii) withdraws the administration of this Plan from the Compensation/Incentive Committee, (iv) permits any person who is not at the time an Employee of the Corporation or of a Subsidiary to be granted a Stock Incentive, (v) permits any Option to be exercised more than ten years after the date it is granted, (vi) amends Section 9 to extend the date set forth therein or (vii) amends this Section 12. (b) Notwithstanding paragraph (a) of this Section 12, the Board of Directors may amend the Plan to take into account changes in applicable securities laws, federal income tax laws and other applicable laws. Should the provisions of Rule 16b-3, or any successor rule, under the Securities Exchange Act of 1934 be amended, the Board of Directors may amend the Plan in accordance therewith. 11 13 (c) The Board of Directors may by resolution adopted by a majority of the entire Board of Directors discontinue this Plan. (d) No amendment or discontinuance of this Plan by the Board of Directors or the stockholders of the Corporation shall, without the consent of the employee, adversely affect any Stock Incentive theretofore granted to him. 12 EX-10.14 4 EXHIBIT 10.14 1 EXHIBIT 10.14 AMENDMENT TO EMPLOYMENT AGREEMENT AGREEMENT dated as of May 17, 1999 between __________________ ("Employee") and Chemed Corporation (the "Company"). WHEREAS, Employee and the Company have entered into an Employment Agreement dated as of May 2, 1988 and amended May 15, 1989, May 21, 1990, May 20, 1991, May 18, 1992, May 17, 1993, May 16, 1994, May 15, 1995, May 20, 1996, May 19, 1997 and May 18, 1998 ("Employment Agreement"); and WHEREAS, Employee and the Company desire to further amend the Employment Agreement in certain respects. NOW, THEREFORE, Employee and the Company mutually agree that the Employment Agreement shall be amended, effective as of May 17, 1999, as follows: A. The date, amended as of May 18, 1998, set forth in Section 1.2 of the Employment Agreement, is hereby deleted and the date of ___________ is hereby substituted therefor. B. The base salary amount set forth in the first sentence of Section 2.1 of the Employment Agreement is hereby deleted and the base salary amount of $_______ per annum is hereby substituted. C. The amount of unrestricted stock award 2 recognized in lieu of incentive compensation in 1998 is $______. Except as specifically amended in this Amendment to Employment Agreement, the Employment Agreement, as amended, shall continue in full force and effect in accordance with its terms, conditions and provisions. IN WITNESS WHEREOF, the parties have duly executed this amendatory agreement as of the date first above written. EMPLOYEE --------------------- CHEMED CORPORATION --------------------- ATTEST 3 SCHEDULE TO EXHIBIT 10.14 MINIMUM CURRENT ANNUAL CURRENT (a) EXPIRATION BASE SALARY STOCK AWARD DATE OF NAME AND POSITION AND BONUS COMPENSATION AGREEMENT - ----------------- ----------- ------------ ---------- Edward L. Hutton $590,000 $247,800 5/3/2001 Chairman and 274,165 Chief Executive Officer Kevin J. McNamara 325,200 81,544 5/3/2004 President 47,112 Timothy S. O'Toole 202,500 64,727 5/3/2004 Executive Vice President 28,373 and Treasurer John M. Mount 238,500 8,942 11/5/2001 Vice President 60,000 Sandra E. Laney 200,000 62,217 5/3/2004 Senior Vice President and 44,999 Chief Administrative Officer Thomas C. Hutton 190,500 26,888 5/3/2004 Vice President 19,210 Arthur V. Tucker 121,100 26,888 5/3/2004 Vice President and Controller 20,342 - ----------------------------- (a) Amount of unrestricted stock award recognized in lieu of incentive compensation in 1998. EX-10.26 5 EXHIBIT 10.26 1 EXHIBIT 10.26 SECOND AMENDMENT TO SPLIT-DOLLAR AGREEMENT This amendment made on August 4, 1999 by and between Chemed Corporation (the "Corporation"), a Delaware corporation, and _________________ ("Employee"), who hereby agree as follows: 1. Recitals (a) The Corporation and the Employee are parties to a Split Dollar Agreement dated as of ____________ and amended ____________ (the "Agreement") 2. (a) Paragraph 4.3 of the Agreement is hereby amended to read in its entirety as follows: "4.3 The premium advances by the Corporation pursuant to paragraph 4.1 and the bonus payments to the Employee pursuant to paragraph 4.2 shall continue with respect to annual premiums due under the Policy until the later of (i) the date on which the Employee reaches age 65, (ii) the date on which the Employee's employment with the Corporation is terminated, or (iii) if a Change of Control (as defined in Exhibit A to this Agreement) occurs while the Employee remains employed by the Corporation, the expiration date specified in the employment agreement between Employee and the Company (without regard to any early termination of such agreement). (b) "Immediately upon a Change in Control, the Corporation shall cause a lump-sum payment to be made to a "rabbi" trust (or other funding vehicle acceptable to the Employee) that represents the present value of all payments that would be required to be made by the Corporation under paragraphs 4.1 and 4.2 until the date the Employee reaches age 65, with such present value to be determined based on the applicable federal rate (compounded annually) under Section 1274(d) of the Internal Revenue Code on the date of the Change in Control. All such funds shall be administered and 2 disbursed in accordance with the terms of this Agreement. The Corporation shall promptly pay upon demand any reasonable legal fees incurred by the Employee in connection with any enforcement of his/her rights under this Agreement upon a Change in Control." (c) Exhibit A of the Agreement hereby reads in its entirety as follows: " 'Change of Control' shall mean the occurrence of one of the following events: (i) any Person becomes a beneficial owner, directly or indirectly, of securities of Chemed Corporation (the "Company") representing 30 percent or more of the combined voting power of the Company's then outstanding voting securities; (ii) the expiration of a tender offer or exchange offer, other than an offer by the Corporation, pursuant to which 20 percent or more of the shares of the Corporation's Capital Stock have been purchased; (iii) the stockholders of the Corporation have approved (a) an agreement to merge or consolidate with or into another corporation and the Corporation is not the surviving corporation or (b) an agreement to sell or otherwise dispose of all or substantially all of the assets of the Corporation (including a plan of liquidation); or (iv) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors cease for any reason to constitute at least a majority thereof, unless the nomination for the election by the Corporation's stockholders of each new director was approved by a vote of at least one-half of the persons who were directors at the beginning of the two-year period." 3. General Except as specifically amended herein, the Agreement will remain in full force and effect in accordance with its original terms, conditions, and provisions. 2 3 IN WITNESS WHEREOF, the parties have duly executed this amendatory agreement as of _______________, 1999. CHEMED CORPORATION _______________________ By: ____________________________ Witness _______________________ By: ____________________________ Witness Employee 3 4 SCHEDULE TO EXHIBIT 10.26 Insured Date of Amendment ------- ----------------- KEVIN J. MCNAMARA 8/4/99 PRESIDENT TIMOTHY S. O'TOOLE 8/4/99 EXECUTIVE VICE PRESIDENT AND TREASURER PAUL C. VOET 8/4/99 EXECUTIVE VICE PRESIDENT THOMAS C. HUTTON 8/4/99 VICE PRESIDENT ARTHUR V. TUCKER 8/4/99 VICE PRESIDENT AND CONTROLLER EX-10.32 6 EXHIBIT 10.32 1 EXHIBIT 10.32 SPLIT DOLLAR AGREEMENT This Agreement, made on August 4, 1999, by and between Chemed Corporation ("the Corporation"), a Delaware corporation with offices at 2600 Chemed Center, 255 E. Fifth Street, Cincinnati, Ohio 45202 and Albert E. Heekin, III ("the Trustee"), as Trustee of an Irrevocable Trust Agreement with John M. Mount and Rosemary L. Mount dated June 22, 1998 ("the Trust"). 1. PREMISES 1.1 John M. Mount is an employee of the Corporation and has created the Trust. The Trustee wishes to insure the lives of Mr. Mount and his wife, Rosemary L. Mount, for the benefit and protection of their family. The Corporation will help the Trustee provide this insurance coverage by payment of part of the premiums under a split dollar arrangement, whereby the Trustee will be the owner of a life insurance policy which will be collaterally assigned to the Corporation as security for amounts the Corporation will contribute for the premium payments. 2. APPLICATION FOR INSURANCE 2.1 The Trustee has applied to Phoenix Home Life Mutual Insurance Company for a Survivor 2 Legacy Policy on the lives of John M. Mount and Rosemary L. Mount for $ $2,000,000 ("Policy"). 3. POLICY OWNERSHIP 3.1 The Trustee shall own the Policy and may exercise all rights of ownership with respect to it, subject only to the security interest of the Corporation as expressed in this Agreement and the collateral assignment of the Policy to the Corporation. 4. PAYMENT OF PREMIUMS 4.1 On or before the due date of each annual premium on the Policy, the Corporation will pay to Phoenix Home Life Mutual Insurance Company an amount equal to the greater of 80 percent of the annual premium or the annual premium less the economic benefit cost (as measured by the Phoenix Home Life term insurance rates) of the portion of the insurance which the beneficiary or beneficiaries named by the Trustee would be entitled to receive if Mr. Mount and Mrs. Mount died during the policy year for which the annual premium is paid. 4.2 On or before the due date of each annual premium on the Policy, the Corporation will pay 2 3 to Phoenix Home Life Mutual Insurance Company, on behalf of the Trustee, the remainder of the annual premium. This payment will constitute compensation to Mr. Mount in the form of a bonus during his lifetime and in the form of deferred compensation if he dies before Mrs. Mount and will be considered paid by the Trustee for purposes of the Assignment (as defined in Article 5). 4.3 These premium advances by the Corporation shall apply specifically to annual premiums due under the Policy up to Mr. Mount's age of 65. However, additional premium advances may be made by mutual agreement of the parties. 5. ASSIGNMENT OF POLICY 5.1 The Trustee shall collaterally assign the Policy to the Corporation so as to reflect the respective interests of the parties under this Agreement, said collateral assignment ("Assignment") having been executed by the parties on the date of this Split Dollar Agreement, and thus made a part of such Policy and this Agreement. 3 4 6. USE OF DIVIDENDS 6.1 The dividends declared by Phoenix Home Life Mutual Insurance Company on the Policy will be used to purchase paid-up insurance. 6.2 The dividend option which is specified in paragraph 6.1 of this Article will not be terminated or changed without a conforming amendment to this Agreement and unless such change is done in accordance with the provisions of Part D "Joint Rights" section of the Assignment. 7. SURRENDER OF POLICY 7.1 The Trustee shall have the sole and exclusive right to surrender the Policy. 7.2 If the Policy is surrendered, the Trustee shall direct the insurance company in writing to draw a check payable to the Corporation in an amount equal to the "Assignee's Cash Value Rights", as defined within the provisions of Part A "Definitions" section of the Assignment. 7.3 If there is a delay in the surrender of the Policy by either party to this Agreement, and if such delay results in diminished policy values being available to either party, neither party 4 5 to this Agreement shall hold the insurance company liable for such diminution in Policy values. 8. DEATH CLAIMS 8.1 Upon the death of the last to die of Mr. and Mrs. Mount, the Corporation shall have an interest in the proceeds of the Policy equal to the "Assignee's Death Benefit Share", as defined within the provisions of Part A "Definitions" section of the Assignment. The balance of proceeds remaining shall be paid directly by the insurance company to the beneficiary or beneficiaries designated in the Policy. 9. TERMINATION OF AGREEMENT 9.1 This Agreement shall terminate upon surrender of the Policy by the Trustee or upon thirty (30) days' written notice of termination given by either party to the other by registered mail at the party's last known address. 9.2 Prior to termination of this Agreement, the Trustee shall direct the insurance company in writing to draw a check payable to the Corporation for an amount equal to the "Assignee's Cash Value Interest", as defined 5 6 within the provisions of Part A "Definitions" section of the Assignment. Upon receipt of this amount, the Corporation shall release the security interest of the Corporation expressed in this Agreement and the Assignment. 10. SPECIAL PROVISIONS The following provisions are part of this Plan and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974: 10.01 - The named fiduciary: The Secretary of the Company 10.02 - The funding policy under this Plan is that all premiums on the Policy be remitted to the Insurer when due. 10.03 - Direct payment by the Insurer is the basis of payment of benefits under this Plan, with those benefits in turn being based on the payment of premiums as provided in the Plan. 10.04 - For claims procedure purposes, the "Claims Manager" shall be the Secretary of the Company. 6 7 (a) If for any reason a claim for benefits under this Plan is denied by the Company, the Claims Manager shall deliver to the claimant a written explanation setting forth the specific reasons for the denial, pertinent references to the Plan section on which the denial is based, such other data as may be pertinent and information on the procedures to be followed by the claimant in obtaining a review of his claim, all written in a manner calculated to be understood by the claimant. For this purpose: (1) The claimant's claim shall be deemed filed when presented orally or in writing to the Claims Manager. 7 8 (2) The Claims Manager's explanation shall be in writing delivered to the claimant within 90 days of the date the claim is filed. (b) The claimant shall have 60 days following his/her receipt of the denial of the claim to file with the Claims Manager a written request for review of the denial. For such review, the claimant or his/her representative may submit pertinent documents and written issues and comments. (c) The Claims Manager shall decide the issue on review and furnish the claimant with a copy within 60 days of receipt of the claimant's request for review of his/her claim. The decision on review shall be in writing and shall include 8 9 specific reasons for the decision written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. If a copy of the decision is not so furnished to the claimant within such 60 days, the claims shall be deemed denied on review. 11. AMENDMENT AND BINDING EFFECT 11.1 This embodies all agreements by the parties made with respect to the Policy. The Agreement shall not be modified or amended except by a writing signed by the parties. The Agreement shall be binding upon the parties, their heirs, legal representatives, successors and assigns. 12. GOVERNING LAW 12.1 This Agreement shall be subject to and shall be construed under the laws of the State of Ohio. 9 10 Executed by the parties at Cincinnati, Ohio, as of August 4, 1999. CHEMED CORPORATION - ------------------------ By: /s/ David G. Sparks, Vice President ------------------------------------ Witness Signature, Corporate Title - ------------------------ By: /s/ Alfred E. Heekin, III ------------------------------------ Witness Trustee 10 EX-10.33 7 EXHIBIT 10.33 1 EXHIBIT 10.33 SPLIT DOLLAR AGREEMENT This Agreement, made on June 1, 1999, by and between Roto-Rooter Services Company ("the Corporation"), an Iowa corporation with offices at 2500 Chemed Center, 255 E. Fifth Street, Cincinnati, Ohio 45202 and Spencer S. Lee (the "Employee"), who is an employee of the Corporation. 1. PREMISES 1.1 The Employee is a valuable employee of the Corporation. He/she wishes to provide adequate protection for his/her family by insuring his/her life. The Corporation will assist the Employee in providing this insurance coverage by payment of part of the premiums under a split dollar arrangement, whereby the Employee will be the owner of a life insurance policy which will be collaterally assigned to the Corporation as security for amounts the Corporation will contribute for the premium payments. 2. APPLICATION FOR INSURANCE 2.1 The Employee has applied to Phoenix Home Life Mutual Insurance Company for an Executive Equity Life Insurance Plan on the life of the Employee for $1,600,000 ("Policy"). 2 3. POLICY OWNERSHIP 3.1 The Employee shall own the Policy and may exercise all rights of ownership with respect to it, subject only to the security interest of the Corporation as expressed in this Agreement and the collateral assignment of the Policy to the Corporation. 4. PAYMENT OF PREMIUMS 4.1 On or before the due date of each annual premium on the Policy, the Corporation will pay to Phoenix Home Life Mutual Insurance Company an amount equal to the greater of 80 percent of the annual premium or the annual premium less the economic benefit cost received by the Employee (as measured by the Phoenix Home Life term insurance rates) for the portion of the insurance which the beneficiary or beneficiaries named by the Employee or their transferee would be entitled to receive if the Employee died during the policy year for which the annual premium is paid. 4.2 On or before the due date of each annual premium on the Policy, the Corporation will pay to Phoenix Home Life Mutual Insurance Company, 2 3 on behalf of the Employee, the remainder of the annual premium. This payment will constitute compensation to the Employee in the form of a bonus and will be considered paid by the Employee for purposes of the Assignment (as defined in Article 5). 4.3 These premium advances by the Corporation shall apply specifically to annual premiums due under the Policy up to the Employee's age of 65. However, additional premium advances may be made by mutual agreement of the parties. 5. ASSIGNMENT OF POLICY 5.1 The Employee shall collaterally assign the Policy to the Corporation so as to reflect the respective interests of the parties under this Agreement, said collateral assignment ("Assignment") having been executed by the parties on the date of this Split Dollar Agreement, and thus made a part of such Policy and this Agreement. 6. USE OF DIVIDENDS 6.1 The dividends declared by Phoenix Home Life Mutual Insurance Company on the Policy will be 3 4 used to purchase Option Term with the balance used to purchase paid-up insurance. 6.2 The dividend option which is specified in paragraph 6.1 of this Article will not be terminated or changed without a conforming amendment to this Agreement and unless such change is done in accordance with the provisions of Part D "Joint Rights" section of the Assignment. 7. SURRENDER OF POLICY 7.1 The Employee shall have the sole and exclusive right to surrender the Policy. 7.2 If the Policy is surrendered, the Employee shall direct the insurance company in writing to draw a check payable to the Corporation in an amount equal to the "Assignee's Cash Value Rights", as defined within the provisions of Part A "Definitions" section of the Assignment. 7.3 If there is a delay in the surrender of the Policy by either party to this Agreement, and if such delay results in diminished policy values being available to either party, neither party to this Agreement shall hold the insurance 4 5 company liable for such diminution in Policy values. 8. DEATH CLAIMS 8.1 Upon the death of the Employee, the Corporation shall have an interest in the proceeds of the Policy equal to the "Assignee's Death Benefit Share", as defined within the provisions of Part A "Definitions" section of the Assignment. The balance of proceeds remaining shall be paid directly by the insurance company to the beneficiary or beneficiaries designated in the Policy. 9. TERMINATION OF AGREEMENT 9.1 This Agreement shall terminate upon surrender of the Policy by the Employee or upon thirty (30) days' written notice of termination given by either party to the other by registered mail at the party's last known address. 9.2 Prior to termination of this Agreement, the Employee shall direct the insurance company in writing to draw a check payable to the Corporation for an amount equal to the "Assignee's Cash Value Interest", as defined within the provisions of Part A "Definitions" 5 6 section of the Assignment. Upon receipt of this amount, the Corporation shall release the security interest of the Corporation expressed in this Agreement and the Assignment. 10. SPECIAL PROVISIONS The following provisions are part of this Plan and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974: 10.01 - The named fiduciary: The Secretary of the Company 10.02 - The funding policy under this Plan is that all premiums on the Policy be remitted to the Insurer when due. 10.03 - Direct payment by the Insurer is the basis of payment of benefits under this Plan, with those benefits in turn being based on the payment of premiums as provided in the Plan. 10.04 - For claims procedure purposes, the "Claims Manager" shall be the Secretary of the Company. 6 7 (a) If for any reason a claim for benefits under this Plan is denied by the Company, the Claims Manager shall deliver to the claimant a written explanation setting forth the specific reasons for the denial, pertinent references to the Plan section on which the denial is based, such other data as may be pertinent and information on the procedures to be followed by the claimant in obtaining a review of his claim, all written in a manner calculated to be understood by the claimant. For this purpose: (1) The claimant's claim shall be deemed filed when presented orally or in writing to the Claims Manager. 7 8 (2) The Claims Manager's explanation shall be in writing delivered to the claimant within 90 days of the date the claim is filed. (b) The claimant shall have 60 days following his/her receipt of the denial of the claim to file with the Claims Manager a written request for review of the denial. For such review, the claimant or his/her representative may submit pertinent documents and written issues and comments. (c) The Claims Manager shall decide the issue on review and furnish the claimant with a copy within 60 days of receipt of the claimant's request for review of his/her claim. The decision on review shall be in writing and shall include 8 9 specific reasons for the decision written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. If a copy of the decision is not so furnished to the claimant within such 60 days, the claims shall be deemed denied on review. 11. AMENDMENT AND BINDING EFFECT 11.1 This embodies all agreements by the parties made with respect to the Policy. The Agreement shall not be modified or amended except by a writing signed by the parties. The Agreement shall be binding upon the parties, their heirs, legal representatives, successors and assigns. 12. GOVERNING LAW 12.1 This Agreement shall be subject to and shall be construed under the laws of the State of Ohio. 9 10 Executed by the parties at Cincinnati, Ohio, as of June 1, 1999. ROTO-ROOTER SERVICES COMPANY By: /s/ Naomi C. Dallob, Secretary - ------------------------ ------------------------------ Witness Signature, Corporate Title By: /s/ Spencer S. Lee - ------------------------ ------------------------------ Witness Employee/Insured 10 EX-10.34 8 EXHIBIT 10.34 1 EXHIBIT 10.34 SPLIT DOLLAR AGREEMENT This Agreement, made on June 1, 1999, by and between Roto-Rooter Services Company ("the Corporation"), an Iowa corporation with offices at 2500 Chemed Center, 255 E. Fifth Street, Cincinnati, Ohio 45202 and Rick L. Arquilla the "Employee"), who is an employee of the Corporation. 1. PREMISES 1.1 The Employee is a valuable employee of the Corporation. He/she wishes to provide adequate protection for his/her family by insuring his/her life. The Corporation will assist the Employee in providing this insurance coverage by payment of part of the premiums under a split dollar arrangement, whereby the Employee will be the owner of a life insurance policy which will be collaterally assigned to the Corporation as security for amounts the Corporation will contribute for the premium payments. 2. APPLICATION FOR INSURANCE 2.1 The Employee has applied to Phoenix Home Life Mutual Insurance Company for an Executive Equity Life Insurance Plan on the life of the Employee for $1,520,000 ("Policy"). 2 3. POLICY OWNERSHIP 3.1 The Employee shall own the Policy and may exercise all rights of ownership with respect to it, subject only to the security interest of the Corporation as expressed in this Agreement and the collateral assignment of the Policy to the Corporation. 4. PAYMENT OF PREMIUMS 4.1 On or before the due date of each annual premium on the Policy, the Corporation will pay to Phoenix Home Life Mutual Insurance Company an amount equal to the greater of 80 percent of the annual premium or the annual premium less the economic benefit cost received by the Employee (as measured by the Phoenix Home Life term insurance rates) for the portion of the insurance which the beneficiary or beneficiaries named by the Employee or their transferee would be entitled to receive if the Employee died during the policy year for which the annual premium is paid. 4.2 On or before the due date of each annual premium on the Policy, the Corporation will pay to Phoenix Home Life Mutual Insurance Company, 2 3 on behalf of the Employee, the remainder of the annual premium. This payment will constitute compensation to the Employee in the form of a bonus and will be considered paid by the Employee for purposes of the Assignment (as defined in Article 5). 4.3 These premium advances by the Corporation shall apply specifically to annual premiums due under the Policy up to the Employee's age of 65. However, additional premium advances may be made by mutual agreement of the parties. 5. ASSIGNMENT OF POLICY 5.1 The Employee shall collaterally assign the Policy to the Corporation so as to reflect the respective interests of the parties under this Agreement, said collateral assignment ("Assignment") having been executed by the parties on the date of this Split Dollar Agreement, and thus made a part of such Policy and this Agreement. 6. USE OF DIVIDENDS 6.1 The dividends declared by Phoenix Home Life Mutual Insurance Company on the Policy will be 3 4 used to purchase Option Term with the balance used to purchase paid-up insurance. 6.2 The dividend option which is specified in paragraph 6.1 of this Article will not be terminated or changed without a conforming amendment to this Agreement and unless such change is done in accordance with the provisions of Part D "Joint Rights" section of the Assignment. 7. SURRENDER OF POLICY 7.1 The Employee shall have the sole and exclusive right to surrender the Policy. 7.2 If the Policy is surrendered, the Employee shall direct the insurance company in writing to draw a check payable to the Corporation in an amount equal to the "Assignee's Cash Value Rights", as defined within the provisions of Part A "Definitions" section of the Assignment. 7.3 If there is a delay in the surrender of the Policy by either party to this Agreement, and if such delay results in diminished policy values being available to either party, neither party to this Agreement shall hold the insurance 4 5 company liable for such diminution in Policy values. 8. DEATH CLAIMS 8.1 Upon the death of the Employee, the Corporation shall have an interest in the proceeds of the Policy equal to the "Assignee's Death Benefit Share", as defined within the provisions of Part A "Definitions" section of the Assignment. The balance of proceeds remaining shall be paid directly by the insurance company to the beneficiary or beneficiaries designated in the Policy. 9. TERMINATION OF AGREEMENT 9.1 This Agreement shall terminate upon surrender of the Policy by the Employee or upon thirty (30) days' written notice of termination given by either party to the other by registered mail at the party's last known address. 9.2 Prior to termination of this Agreement, the Employee shall direct the insurance company in writing to draw a check payable to the Corporation for an amount equal to the "Assignee's Cash Value Interest", as defined within the provisions of Part A "Definitions" 5 6 section of the Assignment. Upon receipt of this amount, the Corporation shall release the security interest of the Corporation expressed in this Agreement and the Assignment. 10. SPECIAL PROVISIONS The following provisions are part of this Plan and are intended to meet the requirements of the Employee Retirement Income Security Act of 1974: 10.01 - The named fiduciary: The Secretary of the Company 10.02 - The funding policy under this Plan is that all premiums on the Policy be remitted to the Insurer when due. 10.03 - Direct payment by the Insurer is the basis of payment of benefits under this Plan, with those benefits in turn being based on the payment of premiums as provided in the Plan. 10.04 - For claims procedure purposes, the "Claims Manager" shall be the Secretary of the Company. 6 7 (a) If for any reason a claim for benefits under this Plan is denied by the Company, the Claims Manager shall deliver to the claimant a written explanation setting forth the specific reasons for the denial, pertinent references to the Plan section on which the denial is based, such other data as may be pertinent and information on the procedures to be followed by the claimant in obtaining a review of his claim, all written in a manner calculated to be understood by the claimant. For this purpose: (1) The claimant's claim shall be deemed filed when presented orally or in writing to the Claims Manager. 7 8 (2) The Claims Manager's explanation shall be in writing delivered to the claimant within 90 days of the date the claim is filed. (b) The claimant shall have 60 days following his/her receipt of the denial of the claim to file with the Claims Manager a written request for review of the denial. For such review, the claimant or his/her representative may submit pertinent documents and written issues and comments. (c) The Claims Manager shall decide the issue on review and furnish the claimant with a copy within 60 days of receipt of the claimant's request for review of his/her claim. The decision on review shall be in writing and shall include 8 9 specific reasons for the decision written in a manner calculated to be understood by the claimant, as well as specific references to the pertinent Plan provisions on which the decision is based. If a copy of the decision is not so furnished to the claimant within such 60 days, the claims shall be deemed denied on review. 11. AMENDMENT AND BINDING EFFECT 11.1 This embodies all agreements by the parties made with respect to the Policy. The Agreement shall not be modified or amended except by a writing signed by the parties. The Agreement shall be binding upon the parties, their heirs, legal representatives, successors and assigns. 12. GOVERNING LAW 12.1 This Agreement shall be subject to and shall be construed under the laws of the State of Ohio. 9 10 Executed by the parties at Cincinnati, Ohio, as of June 1, 1999. ROTO-ROOTER SERVICES COMPANY By: /s/ Naomi C. Dallob, Secretary - ------------------------ ------------------------------ Witness Signature, Corporate Title By: /s/ Rick L. Arguilla - ------------------------ ------------------------------ Witness Employee/Insured 10 EX-10.35 9 EXHIBIT 10.35 1 EXHIBIT 10.35 FORM OF PROMISSORY NOTE $ Cincinnati Ohio January 1, 2000 - -------------------------------------------------------------------------------- Amount City State Date In consideration of value received, the undersigned promises to pay, in lawful money of the United States of America, on demand to the order of Chemed Corporation, a Delaware corporation, at its offices located at 2600 Chemed Center, 255 East Fifth Street, Cincinnati, Ohio 45202, the principal sum of ____________________________________($__________) plus interest. Interest shall accrue and be payable annually on the last day of each year at the short term semi-annual Applicable Federal Rate as published by the Internal Revenue Service, currently 5.88%, until this Note, together with all accrued interest, be paid in full. Any payment hereon shall be applied first to the payment of any interest which may then be due and unpaid and the balance thereof to the repayment of the said principal amount. This Note shall be and become immediately due and payable at the option of the holder without any demand or notice upon the first to occur of the following: (1) the holder deems itself insecure, (2) the death, insolvency, assignment for the benefit of creditors, or the commencement of any bankruptcy or insolvency proceedings of or against the undersigned, (3) any attempted transfer by the undersigned of those shares of Chemed capital stock purchased on the undersigned's behalf through the Executive Stock Ownership Program, or (4) upon termination of employment of the undersigned with Chemed Corporation or its affiliates for any reason. The undersigned agrees to pay all costs of collection which may be incurred should suit be instituted. The waiver of any provision, term or condition of this Note shall not be taken to be a waiver of any subsequent breach of the same or any other provision, term or condition. 2 The undersigned hereby waives presentment, demand, notice of dishonor, protest and notice of nonpayment and protest. _______________________________ Witness: _______________________________ 3 SCHEDULE TO EXHIBIT 10.35 Employee Title Amount -------- ----- ------ Edward L. Hutton Chairman, CEO $540,006.51 Timothy S. O'Toole Executive V.P. & Treasurer 360,000.00 Sandra E. Laney Senior V.P., COA 200,000.00 Thomas C. Hutton Vice President 184,002.77 James H. Devlin Vice President 184,002.77 John M. Mount Vice President 183,997.24 Spencer S. Lee Vice President 183,997.24 Rick L. Arquilla President of Roto-Rooter 99,986.18 Services Company EX-13 10 EXHIBIT 13 1 Exhibit 13 CHEMED ANNUAL REPORT 1999 PROVIDING ESSENTIAL SERVIES TO HOME OWNERS AND BUSINESSES, INDIVIDUALS AND FAMILIES 2 CHEMED Chemed Corporation, headquartered in Cincinnati, is publicly traded on the New York Stock Exchange. Through three wholly owned subsidiaries, Roto-Rooter, Inc., Patient Care, Inc., and Service America Systems, Inc., Chemed offers essential services to home owners and businesses, individuals and families. ROTO-ROOTER(R) Roto-Rooter provides plumbing and drain cleaning services, through both company operations and franchisees, to residential and commercial customers in the United States, Canada, and six overseas territories. PATIENT CARE INC.(R) Patient Care delivers home healthcare services, focusing on personal care provided by its staff of well-trained home health aides. SERVICE AMERICA(TM) Service America markets major-appliance and heating, ventilating, and air-conditioning (HVAC) repair through service contracts and provides repair, replacement, and maintenance on a retail basis as well. 3 FINANCIAL REVIEW
CONTENTS Statement of Accounting Policies ..................... 12 Consolidated Statement of Income ..................... 13 Consolidated Balance Sheet ........................... 14 Consolidated Statement of Cash Flows ................. 15 Consolidated Statement of Changes in Stockholders' Equity ........................... 16 Consolidated Statement of Comprehensive Income ........................... 16 Notes to Financial Statements ........................ 17 Segment Data ......................................... 26 Selected Financial Data .............................. 28 Supplemental Revenue and Profit Statistics by Business Segment .................... 30 Unaudited Summary of Quarterly Results ............... 31 Management's Discussion and Analysis of Financial Condition and Results of Operations ......................... 32
[PricewaterhouseCoopers LLP LOGO] REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Chemed Corporation In our opinion, the consolidated financial statements appearing on pages 12 through 27 of this report present fairly, in all material respects, the financial position of Chemed Corporation and its subsidiaries ("the Company") at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP Cincinnati, Ohio February 1, 2000 11 4 STATEMENT OF ACCOUNTING POLICIES Chemed Corporation and Subsidiary Companies PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Chemed Corporation and its wholly owned subsidiaries. All significant intercompany transactions have been eliminated. CASH EQUIVALENTS Cash equivalents comprise short-term highly liquid investments that have been purchased within three months of their date of maturity. OTHER INVESTMENTS Other investments are recorded at their estimated fair values. In calculating realized gains and losses on the sales of investments, the specific-identification method is used to determine the cost of investments sold. INVENTORIES Inventories are stated at the lower of cost or market. For determining the value of inventories, the first-in, first-out ("FIFO") method is used. DEPRECIATION AND PROPERTIES AND EQUIPMENT Depreciation of properties and equipment is computed using the straight-line method over the estimated useful lives of the assets. Expenditures for maintenance, repairs, renewals and betterments that do not materially prolong the useful lives of the assets are expensed as incurred. The cost of property retired or sold and the related accumulated depreciation are removed from the accounts, and the resulting gain or loss is reflected currently in income. INTANGIBLE ASSETS Goodwill and identifiable intangible assets arise from purchase business combinations and are amortized using the straight-line method over the estimated useful lives of the assets, but not in excess of 40 years. The lives of the Company's gross intangible assets at December 31, 1999, were (in thousands):
1 - 10 years $ 5,158 11 - 20 years 3,077 31 - 40 years 200,722
The Company periodically makes an estimation and valuation of the future benefits of its intangible assets based on key financial indicators. If the projected undiscounted cash flows of a major business unit indicate that goodwill or identifiable intangible assets have been impaired, a write-down to fair value is made. REVENUE RECOGNITION Revenues received under prepaid contractual service agreements are recognized on a straight-line basis over the life of the contract. All other service revenues and sales are recognized when the services are provided or the products are delivered. COMPUTATION OF EARNINGS PER SHARE Earnings per share are computed using the weighted average number of shares of capital stock outstanding. Diluted earnings per share reflect the dilutive impact of the Company's outstanding stock options and nonvested stock awards. EMPLOYEE STOCK OWNERSHIP PLANS Contributions to the Company's Employee Stock Ownership Plans ("ESOP") are based on established debt repayment schedules. Shares are allocated to participants based on the principal and interest payments made during the period. The Company's policy is to record its ESOP expense by applying the transition rule under the level-principal amortization concept. STOCK-BASED COMPENSATION PLANS The Company uses Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees, to account for stock-based compensation. Since the Company's stock options qualify as fixed options under APB 25 and since the option price equals the market price on the date of grant, there is no compensation cost recorded for stock options. Restricted stock is recorded as compensation cost over the requisite vesting periods based on the market value on the date of grant. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. RECLASSIFICATIONS Certain amounts in prior years' financial statements have been reclassified to conform to the 1999 presentation. 12 5 CONSOLIDATED STATEMENT OF INCOME Chemed Corporation and Subsidiary Companies
(in thousands, except per share data) For the Years Ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- Continuing Operations Service revenues and sales ............................. $453,593 $381,283 $341,729 -------- -------- -------- Cost of services provided and goods sold ............... 276,759 237,148 212,647 General and administrative expenses .................... 95,683 80,145 76,047 Selling and marketing expenses ......................... 41,237 33,249 24,931 Depreciation ........................................... 13,129 10,649 8,622 Acquisition expenses (Note 2) .......................... -- 752 -- -------- -------- -------- Total costs and expenses ............................ 426,808 361,943 322,247 -------- -------- -------- Income from operations ................................. 26,785 19,340 19,482 Interest expense ....................................... (6,858) (6,793) (10,552) Other income--net (Note 4) ............................. 11,026 19,578 18,951 -------- -------- -------- Income before income taxes .......................... 30,953 32,125 27,881 Income taxes (Note 5) .................................. (11,257) (12,216) (10,804) -------- -------- -------- Income from continuing operations ...................... 19,696 19,909 17,077 Discontinued Operations (Note 3) ............................. -- -- 13,160 -------- -------- -------- Net Income ................................................... $ 19,696 $ 19,909 $ 30,237 ======== ======== ======== Earnings Per Share Income from continuing operations ...................... $ 1.88 $ 1.98 $ 1.72 ======== ======== ======== Net income ............................................. $ 1.88 $ 1.98 $ 3.04 ======== ======== ======== Average number of shares outstanding ................... 10,470 10,058 9,940 ======== ======== ======== Diluted Earnings Per Share (Note 13) Income from continuing operations ...................... $ 1.87 $ 1.97 $ 1.71 ======== ======== ======== Net income ............................................. $ 1.87 $ 1.97 $ 3.02 ======== ======== ======== Average number of shares outstanding ................... 10,514 10,100 10,014 ======== ======== ========
The Statement of Accounting Policies and the accompanying Notes to Financial Statements are integral parts of this statement. 13 6 CONSOLIDATED BALANCE SHEET Chemed Corporation and Subsidiary Companies
(in thousands, except share and per share data) December 31, 1999 1998 - --------------------------------------------------------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents (Note 6) ......................................................... $ 17,282 $ 41,358 Accounts receivable less allowances of $4,554 (1998--$3,601) ............................... 55,889 45,260 Inventories, primarily general merchandise and finished goods .............................. 9,794 9,828 Statutory deposits ......................................................................... 14,254 16,698 Current deferred income taxes (Note 5) ..................................................... 9,294 6,807 Other current assets ....................................................................... 5,289 4,680 -------- -------- Total current assets .................................................................... 111,802 124,631 Other investments (Note 12) ................................................................... 37,849 55,778 Properties and equipment, at cost less accumulated depreciation (Note 7) ...................... 71,728 61,721 Identifiable intangible assets less accumulated amortization of $6,558 (1998--$5,369) ......... 12,597 12,960 Goodwill less accumulated amortization of $26,545 (1998--$21,879) ............................. 163,257 155,965 Other assets .................................................................................. 24,070 18,649 -------- -------- Total Assets ...................................................................... $421,303 $429,704 ======== ======== Liabilities Current liabilities Accounts payable ........................................................................... $ 11,246 $ 10,318 Current portion of long-term debt (Note 8) ................................................. 11,719 4,393 Income taxes (Note 5) ...................................................................... 8,714 12,563 Deferred contract revenue .................................................................. 25,630 26,571 Other current liabilities (Note 9) ......................................................... 41,119 37,253 -------- -------- Total current liabilities ............................................................... 98,428 91,098 Long-term debt (Note 8) ....................................................................... 78,580 80,407 Other liabilities (Note 9) .................................................................... 32,251 34,843 -------- -------- Total Liabilities ................................................................. 209,259 206,348 -------- -------- Stockholders' Equity Capital stock--authorized 15,000,000 shares $1 par; issued 13,664,892 shares (1998--13,605,481 shares) ......................................... 13,665 13,605 Paid-in capital ............................................................................... 164,549 162,252 Retained earnings ............................................................................. 144,322 146,961 Treasury stock--3,268,783 shares (1998--3,190,757 shares), at cost ............................ (99,437) (97,237) Unearned compensation (Note 10) ............................................................... (17,056) (20,558) Deferred compensation payable in Company stock (Note 10) ...................................... 5,340 5,071 Accumulated other comprehensive income ........................................................ 3,392 13,262 Notes receivable for shares sold (Note 14) .................................................... (2,731) -- -------- -------- Total Stockholders' Equity ........................................................ 212,044 223,356 -------- -------- Commitments and contingencies (Notes 9 and 11) Total Liabilities and Stockholders' Equity ........................................ $421,303 $429,704 ======== ========
The Statement of Accounting Policies and the accompanying Notes to Financial Statements are integral parts of this statement. 14 7 CONSOLIDATED STATEMENT OF CASH FLOWS Chemed Corporation and Subsidiary Companies (in thousands)
For the Years Ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income ............................................................... $ 19,696 $19,909 $ 30,237 Adjustments to reconcile net income to net cash provided by operations: Depreciation and amortization ........................................ 20,129 17,284 15,163 Gains on sales of investments ........................................ (4,661) (12,589) (12,235) Provision for uncollectible accounts receivable ...................... 2,235 2,452 702 Provision for deferred income taxes .................................. 128 3,426 (1,820) Discontinued operations .............................................. -- -- (13,160) Changes in operating assets and liabilities, excluding amounts acquired in business combinations: Increase in accounts receivable ................................. (13,949) (3,848) (7,327) Decrease/(increase) in statutory reserve requirements ........... 2,444 (561) 3,825 Increase in inventories and other current assets ................ (541) (938) (762) Increase/(decrease) in accounts payable, deferred contract revenue and other current liabilities ............... 5,094 (4,593) 2,209 Increase/(decrease) in income taxes ............................. (3,108) 475 7,565 Other--net ............................................................ 75 (239) (650) -------- ------- -------- Net cash provided by continuing operations ........................... 27,542 20,778 23,747 Net cash provided by discontinued operations ......................... -- -- 9,699 -------- ------- -------- Net cash provided by operating activities ............................ 27,542 20,778 33,446 -------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures ..................................................... (22,411) (21,997) (20,117) Business combinations, net of cash acquired (Note 2) .................... (15,518) (14,843) (14,669) Proceeds from sales of investments ....................................... 7,701 14,963 14,060 Net proceeds from discontinued operations (Note 3) ...................... (2,533) (5,607) 154,691 Investing activities of discontinued operations .......................... -- -- (6,792) Purchase of Roto-Rooter minority interest ................................ (1,708) (1,556) (2,734) Other--net ................................................................ 2,295 3,794 1,514 -------- ------- -------- Net cash provided/(used) by investing activities ..................... (32,174) (25,246) 125,953 -------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid ........................................................... (22,456) (21,674) (21,000) Proceeds from issuance of long-term debt (Note 8) ....................... 10,000 -- 35,000 Repayment of long-term debt (Note 8) .................................... (2,982) (2,891) (96,487) Acquisition of shares for stock purchase plan ............................ (2,731) -- -- Purchases of treasury stock .............................................. (1,724) (399) -- Prepayment of ESOP debt (Note 10) ....................................... -- -- (16,201) Decrease in bank notes and loans payable ................................. -- -- (5,000) Other-net ................................................................ 449 (168) 1,219 -------- ------- -------- Net cash used by financing activities ................................ (19,444) (25,132) (102,469) -------- ------- -------- INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS .............................. (24,076) (29,600) 56,930 Cash and cash equivalents at beginning of year ................................ 41,358 70,958 14,028 -------- ------- -------- Cash and cash equivalents at end of year ...................................... $ 17,282 $ 41,358 $ 70,958 ======== ======== ======== The Statement of Accounting Policies and the accompanying Notes to Financial Statements are integral parts of this statement.
15 8 CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY Chemed Corporation and Subsidiary Companies (in thousands, except per share data)
TREASURY CAPITAL PAID-IN RETAINED STOCK-- STOCK CAPITAL EARNINGS AT COST - ---------------------------------------------------------------------------------------------------------- Balance at December 31, 1996 ......................... $ 12,768 $ 150,296 $ 139,262 $(82,943) Net income ........................................... -- -- 30,237 -- Dividends paid ($2.09 per share) .................... -- -- (21,000) -- Other comprehensive income ........................... -- -- -- -- Decrease in unearned compensation (Note 10) ........................... -- -- -- -- Stock awards and exercise of stock options (Note 14) ....................... 252 8,558 -- (5,120) Other ................................................ -- (369) 181 -- --------- --------- --------- -------- Balance at December 31, 1997 ................... 13,020 158,485 148,680 (88,063) Net income ........................................... -- -- 19,909 -- Dividends paid ($2.12 per share) .................... -- -- (21,674) -- Other comprehensive income ........................... -- -- -- -- Decrease in unearned compensation (Note 10) ........................... -- -- -- -- Reclassification of employee benefit trust liabilities/(assets) ....................... -- -- -- (5,345) Pooling of interests (Note 2) ....................... 469 200 (104) -- Purchases of treasury stock .......................... -- -- -- (399) Stock awards and exercise of stock options (Note 14) ....................... 118 4,266 -- (3,581) Other ................................................ (2) (699) 150 151 --------- --------- --------- -------- BALANCE AT DECEMBER 31, 1998 .................... 13,605 162,252 146,961 (97,237) NET INCOME ........................................... -- -- 19,696 -- DIVIDENDS PAID ($2.12 PER SHARE) ..................... -- -- (22,456) -- OTHER COMPREHENSIVE INCOME ........................... -- -- -- -- DECREASE IN UNEARNED COMPENSATION (NOTE 10) ........................... -- -- -- -- SALE OF SHARES FOR NOTES ............................. -- -- -- 2,731 PURCHASES OF TREASURY STOCK .......................... -- -- -- (4,455) STOCK AWARDS (NOTE 14) ............................... 54 1,690 -- (326) OTHER ................................................ 6 607 121 (150) --------- --------- --------- -------- BALANCE AT DECEMBER 31, 1999 ................... $ 13,665 $ 164,549 $ 144,322 $(99,437) ========= ========= ========= ========
DEFERRED COMPENSATION ACCUMULATED NOTES UNEARNED PAYABLE OTHER COM- RECEIVABLE COMPEN- IN COMPANY PREHENSIVE FOR SATION STOCK INCOME SHARES SOLD TOTAL - ---------------------------------------------------------------------------------------------------------------------- Balance at December 31, 1996 ......................... $(27,554) $ -- $ 26,062 $ -- $ 217,891 Net income ........................................... -- -- -- -- 30,237 Dividends paid ($2.09 per share) .................... -- -- -- -- (21,000) Other comprehensive income ........................... -- -- (6,105) -- (6,105) Decrease in unearned compensation (Note 10) ........................... 5,788 -- -- -- 5,788 Stock awards and exercise of stock options (Note 14) ....................... (2,193) -- -- -- 1,497 Other ................................................ -- -- -- -- (188) --------- --------- --------- -------- --------- Balance at December 31, 1997 ................... (23,959) -- 19,957 -- 228,120 Net income ........................................... -- -- -- -- 19,909 Dividends paid ($2.12 per share) .................... -- -- -- -- (21,674) Other comprehensive income ........................... -- -- (6,695) -- (6,695) Decrease in unearned compensation (Note 10) ........................... 3,934 -- -- -- 3,934 Reclassification of employee benefit trust liabilities/(assets) ....................... -- 5,345 -- -- -- Pooling of interests (Note 2) ....................... -- -- -- -- 565 Purchases of treasury stock .......................... -- -- -- -- (399) Stock awards and exercise of stock options (Note 14) ....................... (533) -- -- -- 270 Other ................................................ -- (274) -- -- (674) --------- --------- --------- -------- --------- BALANCE AT DECEMBER 31, 1998 .................... (20,558) 5,071 13,262 -- 223,356 NET INCOME ........................................... -- -- -- -- 19,696 DIVIDENDS PAID ($2.12 PER SHARE) ..................... -- -- -- -- (22,456) OTHER COMPREHENSIVE INCOME ........................... -- -- (9,870) -- (9,870) DECREASE IN UNEARNED COMPENSATION (NOTE 10) ........................... 4,498 -- -- -- 4,498 SALE OF SHARES FOR NOTES ............................. -- -- -- (2,731) -- PURCHASES OF TREASURY STOCK .......................... -- -- -- -- (4,455) STOCK AWARDS (NOTE 14) ............................... (996) -- -- -- 422 OTHER ................................................ -- 269 -- -- 853 --------- --------- --------- -------- --------- BALANCE AT DECEMBER 31, 1999 ................... $(17,056) $ 5,340 $ 3,392 $ (2,731) $ 212,044 ========= ========= ========= ======== =========
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Chemed Corporation and Subsidiary Companies (in thousands) For the Years Ended December 31, 1999 1998 1997 - -------------------------------------------------------------------------------------------------------- Net income ................................................................ $19,696 $19,909 $30,237 ------- ------- ------- Other comprehensive income net of income tax: Unrealized holding gains/(losses) arising during the period ......... (6,910) 1,250 1,547 Less reclassification adjustment for gains included in net income ... (2,960) (7,945) (7,652) ------- ------- ------- Total ............................................................... (9,870) (6,695) (6,105) ------- ------- ------- Comprehensive income ...................................................... $ 9,826 $13,214 $24,132 ======= ======= =======
The Statement of Accounting Policies and the accompanying Notes to Financial Statements are integral parts of these statements. 16 9 NOTES TO FINANCIAL STATEMENTS Chemed Corporation and Subsidiary Companies 1. SEGMENTS AND NATURE OF THE BUSINESS Chemed is a diversified public corporation with strategic positions in plumbing, drain cleaning, and heating, ventilating and air conditioning ("HVAC") services (Roto-Rooter); home healthcare services (Patient Care); and residential appliance and air conditioning repair services (Service America). Relative contributions to aftertax segment earnings were 72%, 16% and 12% in 1999, respectively. The business segments are defined as follows: o The Roto-Rooter segment includes the combined operations of the Roto-Rooter Group ("Roto-Rooter"), a group of wholly owned businesses that provide repair and maintenance services to residential and commercial accounts. Such services include plumbing; sewer, drain and pipe cleaning; and HVAC services. They are delivered through company-owned, contractor-operated and franchised locations. Roto-Rooter also manufactures and sells products and equipment used to provide such services. o The Patient Care segment includes the consolidated operations of the wholly owned businesses comprising the Patient Care Group ("Patient Care"), which offers complete, professional home-healthcare services primarily in the New York-New Jersey-Connecticut area. Services provided include skilled nursing; home health aid; physical, speech, respiratory and occupational therapies; medical social work; and nutrition. o The Service America segment includes the consolidated operations of the wholly owned businesses comprising the Service America Systems Group ("Service America"). The group provides HVAC and appliance repair and maintenance services primarily to residential customers through service contracts and retail sales. In addition, Service America sells air conditioning equipment and duct cleaning services. Substantially all of the Company's service revenues and sales from continuing operations are generated from business within the United States. Within the Patient Care segment, balances due from the U.S. federal government at December 31, 1999, accounted for approximately 13% of the Company's consolidated accounts receivable balance. No other single customer's balance at December 31, 1999, accounted for more than 10% of the Company's consolidated accounts receivable balance. In addition, substantially all of Patient Care's accounts receivable at December 31, 1999 ($31.8 million), was generated from customers located in the northeastern United States. Management closely monitors accounts receivable balances and has established policies regarding the extension of credit and compliance therewith. The Patient Care segment historically has experienced a relatively low level of losses on the collection of its receivables. Approximately 36% of Patient Care's net revenues are derived from services provided directly to patients with coverage under the federal government's Medicare program or under joint federal-and-state-sponsored Medicaid programs. In addition, 34% of Patient Care's revenues arise from contracts with other certified home-health agencies to provide services to recipients under these entitlement programs. Financial data by business segment shown on pages 26 and 27 of this annual report are integral parts of these financial statements. 2. BUSINESS COMBINATIONS During 1999, 10 purchase business combinations were completed within the Roto-Rooter, Patient Care and Service America segments for aggregate purchase prices of $15.5 million in cash. During 1998, 16 purchase business combinations were completed within the Roto-Rooter, Patient Care and Service America segments for aggregate purchase prices of $18.6 million in cash. In addition, two pooling-of-interests business combinations were completed within the Roto-Rooter segment upon the issuance of 469,560 shares of Chemed Capital Stock. Also, during 1997, 12 purchase business combinations were completed within the Roto-Rooter and Patient Care segments for aggregate purchase prices of $12.7 million in cash. All of the aforementioned Roto-Rooter business combinations involved operations primarily in the business of providing plumbing repair, HVAC and drain cleaning services. All of the Patient Care acquisitions involved operations primarily in the business of providing home healthcare services, and the Service America acquisitions provide HVAC and appliance repair and maintenance services. 17 10 The unaudited pro forma results of operations, assuming purchase business combinations completed in 1999, 1998 and 1997 were completed on January 1 of the preceding year, are presented below (in thousands, except per share data):
For the Years Ended December 31, -------------------------------------- Continuing Operations 1999 1998 1997 - -------------------- ---------- ---------- -------- Service revenues and sales $458,578 $409,935 $383,203 Income from con- tinuing operations 20,017 21,202 19,590 Earnings per share 1.91 2.11 1.97 Diluted earnings per share 1.90 2.10 1.96
The excess of the purchase price over the fair value of the net assets acquired in purchase business combinations is classified as goodwill. A summary of net assets acquired in purchase business combinations follows (in thousands):
For the Years Ended December 31, -------------------------------------- 1999 1998 1997 -------- -------- -------- Working capital $ 2,935 $ 1,038 $ 2,961 Identifiable intangible assets 765 485 1,105 Goodwill 11,893 17,294 11,449 Other assets and liabilities--net (75) (307) (827) -------- -------- -------- Total net assets 15,518 18,510 14,688 Less--cash and cash equivalents acquired -- (767) (19) --present value of deferred payments -- (2,900) -- -------- -------- -------- Net cash used $ 15,518 $ 14,843 $ 14,669 ======== ======== ========
The combined impact of the two pooling-of-interests transactions on the Company's historical consolidated financial statements was not material; consequently, prior-period financial statements were not restated for these transactions. The results of operations of all business combinations have been included in the Company's consolidated financial statements from the effective date of each combination. In connection with the pooling-of-interests transactions in 1998, the Company incurred expenses aggregating $752,000 ($495,000 aftertax or $.05 per share). 3. DISCONTINUED OPERATIONS Effective September 20, 1997, the Company sold all of the wholly owned businesses comprising The Omnia Group ("Omnia") to Banta Corporation for $50.7 million in cash plus deferred payments with a present value of $1.5 million. The Company recognized a loss of $19.2 million (net of income tax benefit of $1.2 million) on the sale of Omnia. On September 30, 1997, Chemed's 81%-owned subsidiary, National Sanitary Supply Company ("National"), was merged with TFBD Inc., a wholly owned subsidiary of Unisource Worldwide Inc. ("Unisource"). In exchange for its ownership interest in National, Chemed received $120.2 million in cash. In addition, Unisource repaid approximately $18.1 million of intercompany borrowings owed to Chemed by National. The Company recognized a gain of $28.7 million (net of income taxes of $32.4 million) on the sale of National. During 1997, combined revenues, income before income taxes and net income of National and Omnia were $285,055,000, $5,519,000 and $3,069,000, respectively. The Company recorded an aftertax net gain on the sale of National and Omnia of $9,493,000 and accrual adjustments aggregating $598,000 relating to operations discontinued in 1991. 4. OTHER INCOME--NET Other income--net comprises the following (in thousands):
For the Years Ended December 31, --------------------------------------- 1999 1998 1997 -------- -------- -------- Gain on sales of investments $ 4,661 $ 12,589 $ 12,235 Dividend income 2,626 2,822 2,920 Unrealized gains/(losses) on investments 1,966 (266) -- Interest income 1,589 4,049 3,687 Other--net 184 384 109 -------- -------- -------- Total other income --net $ 11,026 $ 19,578 $ 18,951 ======== ======== ========
18 11 5. INCOME TAXES The provision for income taxes comprises the following (in thousands):
For the Years Ended December 31, --------------------------------------- Continuing Operations 1999 1998 1997 - -------------------- -------- -------- -------- Current U.S. federal $ 9,024 $ 7,457 $ 9,752 U.S. state and local 1,917 1,213 1,985 Foreign 188 120 245 Deferred U.S. federal 171 3,432 (971) Foreign (43) (6) (207) -------- -------- -------- Total $ 11,257 $ 12,216 $ 10,804 ======== ======== ======== Discontinued Operations - ---------------------- Current U.S. federal $ (770) $ 237 $ 26,853 U.S. state and local -- -- 5,807 Deferred U.S. federal 770 (237) (54) -------- -------- -------- Total $ -- $ -- $ 32,606 ======== ======== ========
A summary of the significant temporary differences that give rise to deferred income tax assets/(liabilities) follows (in thousands):
December 31, --------------------------- 1999 1998 -------- -------- Accruals related to discontinued operations $ 6,337 $ 6,958 Deferred compensation 5,656 4,598 Accrued insurance expense 4,667 4,491 Accrued state taxes 1,932 -- Allowances for uncollectible accounts receivable 1,601 1,264 Amortization of intangibles 1,262 1,827 Severance payments 963 1,562 Other 3,519 3,145 -------- -------- Gross deferred income tax assets 25,937 23,845 -------- -------- Accelerated tax depreciation (6,045) (4,649) Market valuation of investments (2,259) (7,097) Cash to accrual adjustments (2,123) (1,601) Other (1,788) (1,756) -------- -------- Gross deferred income tax liabilities (12,215) (15,103) -------- -------- Net deferred income tax assets $ 13,722 $ 8,742 ======== ========
Included in other assets at December 31, 1999, are deferred income tax assets of $4,428,000 (December 31, 1998--$1,935,000). Based on the Company's history of prior operating earnings and its expectations for future growth, management has determined that the operating income of the Company will, more likely than not, be sufficient to ensure the full realization of the deferred income tax assets. The difference between the effective tax rate for continuing operations and the statutory U.S. federal income tax rate is explained as follows:
For the Years Ended December 31, ------------------------------ 1999 1998 1997 ----- ---- ---- Statutory U.S. federal income tax rate 35.0% 35.0% 35.0% Nondeductible amortization of goodwill 4.5 4.2 5.0 State and local income taxes, less federal income tax benefit 4.0 2.4 4.6 Domestic dividend exclusion (2.3) (2.2) (2.6) Tax adjustments related to finalization of prior years' audits (1.7) -- -- Tax benefit on dividends paid to ESOPs (1.3) (1.3) (2.6) Other--net (1.8) (.1) (.6) ---- ---- ---- Effective tax rate 36.4% 38.0% 38.8% ==== ==== ====
Income taxes included in the components of other comprehensive income are as follows (in thousands):
For the Years Ended December 31, ----------------------------------- 1999 1998 1997 ------- ------- ------- Unrealized holding gains/(losses) $(3,721) $ 673 $ 833 Reclassification adjustment (1,701) (4,644) (4,583)
The total amount of income taxes paid during the year ended December 31, 1999, was $13,982,000 (1998--$8,069,000; 1997--$36,849,000). 19 12 6. CASH EQUIVALENTS Included in cash and cash equivalents at December 31, 1999, are cash equivalents in the amount of $14,514,000 (1998--$38,330,000). The cash equivalents at both dates consist of investments in various money market funds and repurchase agreements yielding interest at a weighted average rate of 2.5% in 1999 and 4.8% in 1998. From time to time throughout the year, the Company invests its excess cash in repurchase agreements directly with major commercial banks. The collateral is not physically held by the Company, but the term of such repurchase agreements is less than 10 days. Investments of significant amounts are spread among a number of banks, and the amounts invested in each bank are varied constantly. 7. PROPERTIES AND EQUIPMENT A summary of properties and equipment follows (in thousands):
December 31, --------------------- 1999 1998 --------- -------- Land $ 2,245 $ 2,243 Buildings 17,822 16,205 Transportation equipment 37,549 30,246 Machinery and equipment 28,471 24,867 Furniture and fixtures 35,116 30,670 Projects under construction 5,935 1,940 -------- -------- Total properties and equipment 127,138 106,171 Less accumulated depreciation (55,410) (44,450) -------- -------- Net properties and equipment $ 71,728 $ 61,721 ======== ========
8. LONG-TERM DEBT AND LINES OF CREDIT A summary of the Company's long-term debt follows (in thousands):
December 31, ------------------- 1999 1998 -------- ------- Senior notes: 8.15%, due 2000 - 2004 $ 50,000 $50,000 7.31%, due 2005 - 2009 25,000 25,000 10.67%, due 1999 - 2003 4,000 5,000 Revolving Credit Agreement: 6.33%, due 2001 10,000 -- Employee Stock Ownership Plans loan guarantees: 8.14% (1998--7.50%), due 1999 - 2000 568 2,494 Other 731 2,306 -------- ------- Subtotal 90,299 84,800 Less current portion (11,719) (4,393) -------- ------- Long-term debt, less current portion $ 78,580 $80,407 ======== =======
SENIOR NOTES In March 1997, the Company borrowed $25,000,000 from several insurance companies. Principal is repayable in five annual installments of $5,000,000 beginning on March 15, 2005, and bears interest at the rate of 7.31% per annum. Interest is payable on March 15 and September 15 of each year. In December 1992, the Company borrowed $50,000,000 from several insurance companies. Principal is repayable in five annual installments of $10,000,000 beginning on December 15, 2000, and bears interest at the rate of 8.15% per annum. Interest is payable on June 15 and December 15 of each year. In November 1988, the Company borrowed $11,000,000 from a consortium of insurance companies. Annual installments of $1,000,000 were due and paid November 1, 1993 through 1999. The remaining $4,000,000 bears interest at the rate of 10.67% with annual principal payments of $1,000,000 due on November 1, 2000 through 2003. Interest is payable on May 1 and November 1 of each year. 20 13 REVOLVING CREDIT AGREEMENT AND LINES OF CREDIT In June 1996, the Company entered into an amended revolving credit agreement with Bank of America National Trust and Savings Association to borrow up to $85,000,000 at any time during the five-year period ending June 20, 2001. Unpaid principal, which amounts to $10,000,000 at December 31, 1999, is due on June 20, 2001. The interest rate is based on various stipulated market rates of interest. In addition, the Company had approximately $26,600,000 of unused short-term lines of credit with various banks at December 31, 1999. EMPLOYEE STOCK OWNERSHIP PLANS ("ESOPs") LOAN GUARANTEES The Company has guaranteed ESOP loans made by various institutional lenders. Payments by the ESOPs, including both principal and interest, are due on March 31 and June 30, 2000. The loans are secured in part by the unallocated shares of the Company's capital stock held by the ESOP trusts. Interest rates are subject to adjustments for changes in rates of specified U.S. Treasury obligations, U.S. federal statutory income tax rates and certain federal tax law changes. The market value of the unallocated shares of the Company's capital stock held by the ESOPs at December 31, 1999, based on that day's closing price of $28.63, was $8,479,000 as compared with aggregate loan guarantees of $568,000. OTHER Other long-term debt has arisen from the assumption of loans in connection with various acquisitions. Interest rates range from 7% to 9%, and the obligations are due on various dates through 2009. The following is a schedule by year of required long-term debt payments as of December 31, 1999 (in thousands):
2000 $11,719 2001 21,129 2002 11,078 2003 11,059 2004 10,059 After 2004 25,255 ------- Total long-term debt $90,299 =======
The various loan agreements contain certain covenants which could restrict the amount of cash dividend payments, net rental payments, treasury stock purchases and certain other transactions of the Company. The Company does not anticipate that the restrictions imposed by the agreements will materially restrict its future operations or ability to pay dividends. The total amount of interest paid during the year ended December 31, 1999, was $6,706,000 (1998--$6,994,000; 1997--$9,949,000). Total interest capitalized during the year ended December 31, 1999, was $927,000 (1998--$308,000; 1997--nil). 9. OTHER LIABILITIES At December 31, 1999, other current liabilities included accrued insurance liabilities of $14,336,000 and accrued wages of $5,888,000 (1998--$12,600,000 and $5,408,000, respectively). Other liabilities at December 31, 1999, include deferred compensation liabilities totaling $12,896,000 (1998--$9,993,000). At December 31, 1999, the Company's accrual for its estimated liability for potential environmental cleanup and related costs arising from the sale of DuBois Chemicals Inc. ("DuBois") amounts to $4,157,000. Of this balance, $3,657,000 is included in other liabilities and $500,000 is included in other current liabilities. The Company is contingently liable for additional DuBois-related environmental cleanup and related costs up to a maximum of $16,890,000. On the basis of a continuing evaluation of the Company's potential liability by the Company's environmental adviser, management believes that it is not probable this additional liability will be paid. Accordingly, no provision for this contingent liability has been recorded. Although it is not presently possible to reliably project the timing of payments related to the Company's potential liability for environmental costs, management believes that any adjustments to its recorded liability will not materially adversely affect its financial position or results of operations. 21 14 10. PENSION AND RETIREMENT PLANS Retirement obligations under various plans cover substantially all full-time employees who meet age and/or service eligibility requirements. The major plans providing retirement benefits to the Company's employees are defined contribution plans. The Company has established two ESOPs which purchased a total of $56,000,000 of the Company's capital stock. Until December 1997, the ESOPs were financed by loans from banks and insurance companies, and payment was guaranteed by the Company. Due to the sales of Omnia and National in 1997, the Company restructured the ESOPs and internally financed approximately $16.2 million of the $21.8 million ESOP loans outstanding at December 31, 1997. Prior to September 30, 1997, substantially all Chemed headquarters and Omnia employees and substantially all employees of National not covered by collective bargaining agreements were participants in the ESOPs. Beginning January 1, 1998, eligible employees of Roto-Rooter began to participate in the ESOPs. Eligible employees of Roto-Rooter and Patient Care are also covered by other defined contribution plans. Expenses charged to continuing operations for the Company's pension and profit-sharing plans, ESOPs, excess benefit plans and other similar plans comprise the following (in thousands):
For the Years Ended December 31, ----------------------------- 1999 1998 1997 ------ ------ ------ ESOPs: Interest expense $ 23 $ 173 $ 336 Compensation cost 1,057 1,038 1,426 Pension, profit-sharing and other similar plans 7,255 3,471 3,586 ------ ------ ------ Total $8,335 $4,682 $5,348 ====== ====== ====== Dividends on ESOP shares used for debt service $1,502 $1,643 $2,570 ====== ====== ======
At December 31, 1999, there were 401,282 allocated shares (December 31, 1998--356,915 shares) and 296,157 unallocated shares (December 31, 1998--376,346 shares) in the ESOP trusts. The Company has an excess benefit plan for key employees whose participation in the ESOPs is limited by ERISA rules. Benefits are determined based on theoretical participation in the qualified ESOPs. Prior to September 1, 1998, the value of these benefits was invested in shares of the Company's stock and in mutual funds, which were held by grantor trusts. Beginning September 1, 1998, current benefits are invested in only mutual funds and participants are not permitted to diversify accumulated benefits which have been invested in shares of the Company's stock. At December 31, 1999, the trusts' assets invested in shares of the Company's capital stock are included in treasury stock, and the corresponding liability is included in a separate component of shareholders' equity. The assets of these excess benefit plans and of Roto-Rooter and Service America excess benefits plans, all of which are invested in various mutual funds, are included in other assets, and the corresponding liabilities are included in other liabilities. At December 31, 1999, these trusts held 156,852 shares of the Company's stock (December 31, 1998--147,310 shares). 11. LEASE ARRANGEMENTS The Company, as lessee, has operating leases which cover its corporate office headquarters; various plant, warehouse and office facilities; office equipment; and transportation equipment. The remaining terms of these leases range from one year to eight years, and in most cases, management expects that these leases will be renewed or replaced by other leases in the normal course of business. All major plants and warehouses and substantially all equipment are owned by the Company. The following is a summary of future minimum rental payments and sublease rentals to be received under operating leases that have initial or remaining noncancelable terms in excess of one year at December 31, 1999 (in thousands):
2000 $ 8,760 2001 7,811 2002 6,884 2003 5,750 2004 5,122 After 2004 7,265 ------- Total minimum rental payments 41,592 Less minimum sublease rentals (4,781) ------- Net minimum rental payments $36,811 =======
22 15 Chemed Corporation and Subsidiary Companies Total rental expense incurred under operating leases for continuing operations follows (in thousands):
For the Years Ended December 31, ----------------------------------- 1999 1998 1997 -------- -------- -------- Total rental payments $ 12,265 $ 9,540 $ 9,993 Less sublease rentals (1,914) (1,602) (2,426) -------- -------- -------- Net rental expense $ 10,351 $ 7,938 $ 7,567 ======== ======== ========
12. FINANCIAL INSTRUMENTS The following methods and assumptions are used in estimating the fair value of each class of the Company's financial instruments: o For cash and cash equivalents, accounts receivable, statutory deposits and accounts payable, the carrying amount is a reasonable estimate of fair value because of the liquidity and short-term nature of these instruments. o For other investments and other assets, fair value is based upon quoted market prices for these or similar securities, if available. Included in other investments, below, is the Company's investment in privately held Vitas Healthcare Corporation ("Vitas"), which provides noncurative care to chronically ill patients. Since it is not considered practicable to obtain an appraisal of the value of Vitas Common Stock Purchase Warrants ("Warrants"), it has been assumed that the market value of the Warrants is equal to book value at December 31, 1999, and December 31, 1998 ($1,500,000). The value of the Vitas 9% Cumulative Preferred Stock ("Preferred") is based on the present value of the mandatory redemption payments, using an interest rate of 9.0%, a rate which management believes is reasonable in view of risk factors attendant to the investment. During 1998, the Company and Vitas agreed to extend the redemption date of the Preferred to April 1, 2000. It is considered reasonably possible that the redemption date will again be extended in the year 2000. o The fair value of the Company's long-term debt is estimated by discounting the future cash outlays associated with each debt instrument using interest rates currently available to the Company for debt issues with similar terms and remaining maturities. The estimated fair values of the Company's financial instruments are as follows (in thousands):
Carrying Fair December 31, Amount Value - ------------ ------ ----- 1999 OTHER INVESTMENTS(a) $37,849 $37,489 LONG-TERM DEBT 90,299 89,680 1998 Other investments(a) $55,778 $55,778 Long-term debt 84,800 90,058
(a) Amounts include $27,243,000 invested in the Preferred, which is recorded in other investments. The Company has classified its investments in equity securities and certain debt securities as either trading or available-for-sale. The trading category includes those investments which are held principally for sale in the near term. All other investments are classified in the available-for-sale category. Investments included in cash equivalents are considered to be trading securities, and all other investments are considered to be available-for-sale. Disclosures regarding the Company's investments, all of which are equity securities classified as available-for-sale, are summarized below (in thousands):
December 31, ---------------- 1999 1998 ------- ------- Aggregate fair value $37,849 $55,778 Gross unrealized holding gains 5,290 20,466 Gross unrealized holding losses 70 60 Amortized cost 32,629 35,372
The chart below summarizes information with respect to available-for-sale securities sold during the period (in thousands):
For the Years Ended December 31, ------------------------- 1999 1998 1997 ------- ------- ------- Proceeds from sale $ 7,701 $14,963 $14,060 Gross realized gains 4,675 12,857 12,248 Gross realized losses 14 268 13
23 16 13. EARNINGS PER SHARE Diluted earnings per share were calculated as follows (in thousands, except per share data):
Income from Continuing Operations Net Income -------------------------------------- --------------------------------------- Income Shares Income Income Shares Income For the Years Ended December 31, (Numerator) (Denominator) Per Share (Numerator) (Denominator) Per Share - ----------------------------- ---------- ------------- --------- ---------- ------------- --------- 1999 Earnings $19,696 10,470 $1.88 $19,696 10,470 $1.88 ===== ===== Nonvested stock awards -- 43 -- 43 Dilutive stock options -- 1 -- 1 ------- ------ ------- ------ Diluted earnings $19,696 10,514 $1.87 $19,696 10,514 $1.87 ======= ====== ===== ======= ====== ===== 1998 Earnings $19,909 10,058 $1.98 $19,909 10,058 $1.98 ===== ===== Nonvested stock awards -- 37 -- 37 Dilutive stock options -- 5 -- 5 ------- ------ ------- ------ Diluted earnings $19,909 10,100 $1.97 $19,909 10,100 $1.97 ======= ====== ===== ======= ====== ===== 1997 Earnings $17,077 9,940 $1.72 $30,237 9,940 $3.04 ===== ===== Nonvested stock awards -- 34 -- 34 Dilutive stock options -- 40 -- 40 Subsidiary stock options -- -- (10) -- ------- ------ ------- ------ Diluted earnings $17,077 10,014 $1.71 $30,227 10,014 $3.02 ======= ====== ===== ======= ====== =====
Earnings per share and diluted earnings per share from discontinued operations in 1997 were $1.32 and $1.31, respectively. During 1999, the following options, whose exercise prices were greater than the average market price during most of the year (and therefore excluded from the computation of diluted earnings per share), were outstanding at December 31, 1999:
Number of Exercise Grant Date Options Price ----------- ---------- -------- May 1999 497,625 $32.19 May 1997 171,688 35.94 March 1998 165,112 39.13 May 1996 162,793 38.75 May 1995 89,713 32.19 February 1995 68,000 33.63 March 1994 37,925 32.13 April 1998 12,000 40.53 May 1998 1,750 37.78
During 1998, the following options, whose exercise prices were greater than the average market price during the last six months of the year (and therefore excluded from the computation of diluted earnings per share), were outstanding at December 31, 1998:
Number of Exercise Grant Date Options Price ----------- ---------- -------- May 1997 196,063 $35.94 March 1998 179,600 39.13 May 1996 164,150 38.75 April 1998 14,000 40.53 May 1998 2,000 37.78
During 1997, all stock options outstanding were dilutive at some time during the year. 14. STOCK INCENTIVE PLANS The Company has eight Stock Incentive Plans under which 2,850,000 shares of Chemed Capital Stock are issued to key employees pursuant to the grant of stock awards and/or options to purchase such shares. All options granted under these plans provide for a purchase price equal to the market value of the stock at the date of grant. Two plans, covering a total of 700,000 shares, were adopted in May 1999. Under the plan adopted in 1983, both nonstatutory and incentive stock options have been granted. Incentive stock options granted under the 1983 plan become exercisable in full six months following the date of the grant; nonstatutory options granted under the 1983 plan become exercisable in four annual installments commencing six months after the date of grant. Under the Long Term Incentive Plan, adopted in 1999, up to 250,000 shares may be issued to employees who are not officers or directors of the Company or its subsidiaries. The other plans are not qualified, restricted or incentive stock option plans under the Internal Revenue Code. Options generally become exercisable six months following the date of grant in either three or four equal annual installments. 24 17 Chemed Corporation and Subsidiary Companies Data relating to the Company's capital stock issued to employees follow:
1999 1998 1997 ----------------------- --------------------- --------------------- NUMBER Number Number OF AVERAGE of Average of Average SHARES PRICE Shares Price Shares Price --------- --------- ------- --------- ------- --------- Stock options: Outstanding at January 1.................... 772,001 $ 36.31 680,013 $ 34.93 644,025 $ 33.70 Granted..................................... 510,650 32.19 199,250 39.23 212,800 35.94 Exercised................................... -- -- (93,599) 32.43 (166,712) 31.45 Forfeited................................... (55,895) 36.10 (13,663) 36.87 (10,100) 34.94 --------- ------- ------- Outstanding at December 31.................. 1,226,756 34.60 772,001 36.31 680,013 34.93 ========= ======= ======= Exercisable at December 31.................. 722,375 35.21 482,746 35.29 369,279 34.03 ========= ======= ======= Stock awards issued............................ 57,816 31.38 25,039 39.65 86,149 35.48 ========= ======= =======
The weighted average contractual life of options outstanding at December 31, 1999, was 7.7 years. The range of exercise prices for these options was from $21.94 to $40.53. At December 31, 1999, there were 310,906 shares available for granting of stock options and awards. Total compensation cost recognized for stock awards for continuing operations was $1,620,000 in 1999 (1998--$1,309,000; 1997--$886,000). The shares of capital stock were issued to key employees and directors at no cost and generally are restricted as to the transfer of ownership. Restrictions covering between 7% and 33% of each holder's shares lapse annually. Statement of Financial Accounting Standards No.123, Accounting for Stock-Based Compensation, requires the presentation of pro forma data assuming all options granted after December 31, 1994, are recorded at fair value. Summarized below are pro forma data developed by applying the Black-Scholes valuation method to the Company's stock options (in thousands, except per share data):
For the Years Ended December 31, ---------------------------------------- Pro Forma Results 1999 1998 1997 - ----------------- ---------- ---------- ---------- Net income $ 18,972 $ 19,138 $ 29,802 Earnings per share 1.81 1.90 3.00 Diluted earnings per share 1.80 1.89 2.98 Per share average fair value of options granted 3.43 5.21 5.74 Assumptions - ---------------- Average risk-free interest rate 5.8% 5.6% 6.6% Expected volatility 19.7 19.0 21.4 Expected life of options 6 yrs. 6 yrs. 6 yrs.
For all periods, it was assumed that the annual dividend would be increased $.01 per share per quarter in the fourth quarter of every odd-numbered year. This assumption was based on the facts and circumstances which existed at the time options were granted and should not be construed to be an indication of future dividend amounts to be paid. In view of the fact that the fair value method of accounting is applied to option grants only after 1994, the above pro forma data do not reflect the full impact of applying such fair value method to all of Chemed's stock options. During 1999, the Company purchased 101,500 shares of its capital stock in open-market transactions and sold these shares to certain employees at fair market value in exchange for interest-bearing notes secured by the shares. The outstanding principal of $2,731,000 at December 31, 1999, is classified as a reduction of stockholders' equity. 15. SUBSEQUENT EVENT In December 1999, the Company commenced an Exchange Offer whereby stockholders were permitted to exchange up to 2,000,000 shares of capital stock for Convertible Trust Preferred Securities ("Trust Securities") on a one-for-one basis. When the Exchange Offer expired on January 31, 2000, approximately 576,000 capital shares were exchanged for Trust Securities with a redemption value of approximately $15.5 million. The Trust Securities pay an annual cash distribution of $2.00 per security (payable at the quarterly rate of $.50 per security commencing in March 2000) and are convertible into capital stock at a price of $37 per security. The Trust Securities mature in 30 years and are callable after three years. The impact of the Exchange Offer on earnings per share is not material. 25 18 SEGMENT DATA Chemed Corporation and Subsidiary Companies
(in thousands) For the Years Ended December 31, 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------------------------ Revenues by Type of Service Roto-Rooter Plumbing repair and maintenance ........................... $102,218 $ 80,150 $ 59,986 Sewer and drain cleaning .................................. 96,629 75,599 66,843 HVAC repair and maintenance ............................... 14,928 12,164 5,334 Industrial and municipal sewer and drain cleaning ......... 11,857 10,527 9,028 Other products and services ............................... 17,187 13,610 12,692 -------- -------- -------- Total Roto-Rooter ................................... 242,819 192,050 153,883 -------- -------- -------- Patient Care Home health aides ......................................... 90,580 85,732 86,038 Registered nurses ......................................... 19,900 16,151 18,114 Live-in aides ............................................. 8,138 9,618 9,707 Other services ............................................ 10,262 6,781 7,284 -------- -------- -------- Total Patient Care .................................. 128,880 118,282 121,143 -------- -------- -------- Service America Repair service contracts .................................. 57,520 56,753 54,318 Demand repair services .................................... 16,380 14,198 12,385 -------- -------- -------- Total Service America ............................... 73,900 70,951 66,703 ======== ======== ======== Other ........................................................... 7,994 -- -- -------- -------- -------- Total service revenues and sales .................... $453,593 $381,283 $341,729 ======== ======== ======== Aftertax Earnings by Segment(a) Roto-Rooter ............................................... $ 14,562 $ 10,530 $ 9,491 Patient Care .............................................. 3,244(e) 3,432 3,212 Service America ........................................... 2,342 2,286 2,196 Other ..................................................... 42 -- -- -------- -------- -------- Total segment earnings .............................. 20,190 16,248 14,899 Corporate Gains on sales of investments ....................... 2,960 7,945 7,652 Overhead ............................................ (4,701) (4,955) (4,794) Net investing and financing income/(expense) ........ 1,247 1,408 (1,482) Acquisition expenses ................................ -- (495) -- Discontinued operations ............................. -- -- 13,160 Other ............................................... -- (242) 802 -------- -------- -------- Net income .................................... $ 19,696 $ 19,909 $ 30,237 ======== ======== ======== Interest Income Roto-Rooter ............................................... $ 19 $ 191 $ 24 Patient Care .............................................. 15 13 48 Service America ........................................... 979 1,126 1,029 -------- -------- -------- Subtotal ............................................ 1,013 1,330 1,101 Corporate ................................................. 847 2,913 2,687 Intercompany eliminations ................................. (271) (194) (101) -------- -------- -------- Total interest income ......................... $ 1,589 $ 4,049 $ 3,687 ======== ======== ========
26 19 SEGMENT DATA (CONTINUED)
1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------------- Interest Expense Roto-Rooter ............................................... $ 2,119 $ 957 $ 145 Patient Care .............................................. 760 536 613 Service America ........................................... -- -- -- -------- -------- -------- Subtotal ............................................ 2,879 1,493 758 Corporate ................................................. 6,587 6,759 10,351 Intercompany eliminations ................................. (2,608) (1,459) (557) -------- -------- -------- Total interest expense ........................ $ 6,858 $ 6,793 $ 10,552 ======== ======== ======== Income Tax Provision Roto-Rooter ............................................... $ 11,713 $ 8,744 $ 7,684 Patient Care .............................................. 1,159 1,144 1,764 Service America ........................................... 2,404 2,405 2,309 Other ..................................................... 27 -- -- -------- -------- -------- Subtotal ............................................ 15,303 12,293 11,757 Corporate ................................................. (4,046) (77) (953) -------- -------- -------- Total income tax provision .................... $ 11,257 $ 12,216 $ 10,804 ======== ======== ======== Identifiable Assets Roto-Rooter ............................................... $183,797 $175,036 $148,352 Patient Care .............................................. 86,277 67,961 63,154 Service America ........................................... 69,632 71,049 70,266 Other ..................................................... 3,354 -- -- -------- -------- -------- Total identifiable assets ........................... 343,060 314,046 281,772 Corporate assets(b) ....................................... 78,243 115,658 167,066 -------- -------- -------- Total assets .................................. $421,303 $429,704 $448,838 ======== ======== ======== Additions to Long-Lived Assets(c) Roto-Rooter ............................................... $ 17,208 $ 27,969 $ 16,965 Patient Care .............................................. 12,001 9,744 8,765 Service America ........................................... 5,111 3,294 6,032 Other ..................................................... 416 -- -- -------- -------- -------- Subtotal ............................................ 34,736 41,007 31,762 Corporate assets .......................................... 1,010 506 2,262 -------- -------- -------- Total additions ............................... $ 35,746 $ 41,513 $ 34,024 ======== ======== ======== Depreciation and Amortization(d) Roto-Rooter ............................................... $ 11,707 $ 9,378 $ 7,387 Patient Care .............................................. 2,686 2,160 1,951 Service America ........................................... 3,790 3,726 3,775 Other ..................................................... 396 -- -- -------- -------- -------- Subtotal ............................................ 18,579 15,264 13,113 Corporate assets(b) ....................................... 1,550 2,020 2,050 -------- -------- -------- Total depreciation and amortization ........... $ 20,129 $ 17,284 $ 15,163 ======== ======== ========
(a) Aftertax earnings represent the net income of the business segments, excluding acquisition expenses. (b) Corporate assets consist primarily of cash and cash equivalents, marketable securities, properties and equipment and other investments. (c) Long-lived assets include goodwill, identifiable intangible assets and property and equipment. (d) Depreciation and amortization include amortization of goodwill, identifiable intangible assets and other assets. (e) Amount includes $872,000 aftertax income from favorable adjustments to prior years' cost reports. 27 20 SELECTED FINANCIAL DATA Chemed Corporation and Subsidiary Companies
(in thousands, except per share data, employee numbers, footnote data, ratios and percentages) 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------------------- Summary of Operations Continuing operations Total service revenues and sales ........................... $453,593 $381,283 $341,729 Gross profit ............................................... 176,834 144,135 129,082 Depreciation ............................................... 13,129 10,649 8,622 Income from operations ..................................... 26,785 19,340 19,482 Income from continuing operations before capital gains(d) ................................. 16,736 11,964 9,425 Income from continuing operations .......................... 19,696 19,909 17,077 Discontinued operations(a) .................................... -- -- 13,160 Cumulative effect of a change in accounting principle ......... -- -- -- Net income .................................................... 19,696 19,909 30,237 Earnings per share: Income from continuing operations before capital gains(d) ................................. $ 1.60 $ 1.19 $ .95 Income from continuing operations .......................... 1.88 1.98 1.72 Net income ................................................. 1.88 1.98 3.04 Average number of shares outstanding ....................... 10,470 10,058 9,940 Diluted earnings per share: Income from continuing operations before capital gains(d) ................................. $ 1.59 $ 1.18 $ .94 Income from continuing operations .......................... 1.87 1.97 1.71 Net income ................................................. 1.87 1.97 3.02 Average number of shares outstanding ....................... 10,514 10,100 10,014 Cash dividends per share ...................................... $ 2.12 $ 2.12 $ 2.09 Financial Position--Year-End Cash, cash equivalents and marketable securities .............. $ 17,282 $ 41,358 $ 70,958 Working capital ............................................... 13,374 33,533 83,103 Properties and equipment, at cost less accumulated depreciation ...................... 71,728 61,721 53,089 Total assets .................................................. 421,303 429,704 448,838 Long-term debt ................................................ 78,580 80,407 83,720 Stockholders' equity .......................................... 212,044 223,356 228,120 Book value per share .......................................... $ 20.40 $ 21.45 $ 22.64 Book value per share assuming dilution ........................ 20.31 21.36 22.54 Other Statistics--Continuing Operations Net cash provided/(used) by continuing operations ............. $ 27,542 $ 20,778 $ 23,747 Capital expenditures .......................................... 22,411 21,997 20,117 Number of employees(b) ........................................ 7,817 7,671 6,849 Number of service and sales representatives ................... 5,796 5,759 5,101 Dividend payout ratio(c) ...................................... 112.8% 107.1% 68.8% Debt to total capital ratio ................................... 29.9 27.5 28.1 Return on average equity(c) ................................... 9.1 8.9 13.8 Return on average total capital employed(c) ................... 7.7 7.7 9.9 Current ratio ................................................. 1.14 1.37 1.88
(a) Discontinued operations include National Sanitary Supply Company and The Omnia Group, discontinued in 1997; accrual adjustments in 1997 relating to the gain on the sale of Omnicare Inc. ("Omnicare"); Omnicare, discontinued in 1994; accrual adjustments from 1992 through 1996 related to the gain on the sale of DuBois Chemicals Inc. ("DuBois"); DuBois, sold in 1991; and adjustments to accruals in 1991 related to operations discontinued in 1986. (b) Numbers reflect full-time-equivalent employees. (c) These computations are based on net income and, with respect to return on average capital employed, various related adjustments. (d) Amounts exclude gains on sales of investments. 28 21
1996 1995 1994 1993 1992 1991 - --------------------------------------------------------------------------------------------------------------------------------- $301,213 $270,449 $240,994 $136,428 $104,688 $ 84,774 118,440 103,412 90,189 54,325 44,750 39,034 7,353 6,505 5,833 3,914 2,854 2,811 17,481 14,102 10,703 7,388 4,599 996 7,386 5,833 3,650 3,289 6,761 4,204 25,117 11,715 7,027 7,563 8,660 6,788 7,211 11,467 36,895 10,266 6,991 46,179 -- -- -- 1,651 -- -- 32,328 23,182 43,922 19,480 15,651 52,967 $ .75 $ .59 $ .37 $ .34 $ .69 $ .42 2.56 1.19 .71 .78 .89 .68 3.30 2.36 4.47 2.00 1.60 5.27 9,801 9,830 9,830 9,756 9,783 10,043 $ .74 $ .58 $ .36 $ .33 $ .68 $ .42 2.54 1.18 .70 .76 .88 .67 3.26 2.33 4.42 1.97 1.59 5.27 9,879 9,898 9,907 9,824 9,838 10,055 $ 2.08 $ 2.06 $ 2.04 $ 2.01 $ 2.00 $ 1.97 $ 14,028 $ 30,497 $ 24,866 $ 20,133 $ 51,142 $ 82,994 8,996 7,159 (14,573) (29,070) 5,574 48,991 40,661 37,860 35,677 33,873 26,419 25,951 509,361 476,732 453,801 385,922 363,960 330,712 158,140 85,317 92,033 97,906 103,580 77,007 217,891 208,657 186,320 137,151 133,511 139,407 $ 21.89 $ 21.18 $ 18.89 $ 14.00 $ 13.68 $ 14.08 21.76 21.06 18.76 13.91 13.62 14.07 $ 13,519 $ 5,385 $ 13,378 $ 6,029 $ 8,583 $ 10,828 10,988 9,219 9,606 7,420 3,835 7,008 5,884 5,278 4,497 2,711 1,726 1,666 4,315 3,835 3,203 1,832 1,090 1,069 63.0% 87.3% 45.6% 101.0% 125.0% 37.4% 44.6 32.8 36.6 44.2 45.2 34.8 15.3 11.9 28.4 14.3 11.6 42.5 10.9 9.3 16.4 9.7 8.7 24.4 1.10 1.07 .86 .68 1.08 1.82
29 22 SUPPLEMENTAL REVENUE AND PROFIT STATISTICS BY BUSINESS SEGMENT Chemed Corporation and Subsidiary Companies (in thousands, except percentages and footnote data)
Continuing Operations ---------------------------------------------------------------- Roto- Patient Service Rooter Care America Other Total - ------------------------------------------------------------------------------------------------------------------------------ SERVICE REVENUES AND SALES 1999 . . . . . . . . . . . . . . . . . . . . $242,819 $128,880 $ 73,900 $ 7,994 $453,593 1998 . . . . . . . . . . . . . . . . . . . . 192,050 118,282 70,951 -- 381,283 1997 . . . . . . . . . . . . . . . . . . . . 153,883 121,143 66,703 -- 341,729 1996 . . . . . . . . . . . . . . . . . . . . 140,163 99,565 61,485 -- 301,213 1995 . . . . . . . . . . . . . . . . . . . . 121,999 90,727 57,723 -- 270,449 1994 . . . . . . . . . . . . . . . . . . . . 109,098 69,064 62,832 -- 240,994 1993 . . . . . . . . . . . . . . . . . . . . 95,555 -- 40,873 -- 136,428 1992 . . . . . . . . . . . . . . . . . . . . 86,185 -- 18,503 -- 104,688 1991 . . . . . . . . . . . . . . . . . . . . 79,217 -- 5,557 -- 84,774 % OF TOTAL 1999 . . . . . . . . . . . . . . . . . . . . 54% 28% 16% 2% 100% 1991 . . . . . . . . . . . . . . . . . . . . 93 -- 7 -- 100 OPERATING PROFIT(a) 1999 . . . . . . . . . . . . . . . . . . . $ 26,310 $ 5,157(d) $ 3,679 $ 71 $ 35,217 1998 . . . . . . . . . . . . . . . . . . . 19,244(b) 5,104 3,491 -- 27,839 1997 . . . . . . . . . . . . . . . . . . . 17,256 5,541 3,443 -- 26,240 1996 . . . . . . . . . . . . . . . . . . . 15,707 5,592 2,503 -- 23,802 1995 . . . . . . . . . . . . . . . . . . . 13,134(c) 4,923 1,906 -- 19,963 1994 . . . . . . . . . . . . . . . . . . . 12,071 2,772 3,061 -- 17,904 1993 . . . . . . . . . . . . . . . . . . . 9,854 -- 3,708 -- 13,562 1992 . . . . . . . . . . . . . . . . . . . 8,626 -- 1,841 -- 10,467 1991 . . . . . . . . . . . . . . . . . . . 7,328 -- 581 -- 7,909 % OF TOTAL 1999 . . . . . . . . . . . . . . . . . . . 75% 15% 10% -- 100% 1991 . . . . . . . . . . . . . . . . . . . 93 -- 7 -- 100
(a) Operating profit is total service revenues and sales less operating expenses and includes 100% of all consolidated operations. In computing operating profit, none of the following items has been added or deducted: general corporate expenses, interest expense, and other income--net. (b) Amount includes $752,000 of expenses incurred in connection with pooling-of-interest business combinations in 1998. (c) Amount includes nonrecurring charges of $538,000 incurred as a result of discussions related to Chemed's proposal to acquire the 42% minority interest in Roto-Rooter. (d) Amount includes $1,453,000 pretax income from favorable adjustments to prior years' cost reports. 30 23 UNAUDITED SUMMARY OF QUARTERLY RESULTS Chemed Corporation and Subsidiary Companies
(in thousands, except per share data) First Second Third Fourth Total 1999 Quarter Quarter Quarter Quarter Year - --------------------------------------------------------------------------------------------------------------------------------- Total service revenues and sales(a) .................. $105,735 $111,385 $114,428 $122,045 $453,593 --------- --------- --------- --------- --------- Gross profit(a) ...................................... $ 40,676 $ 43,012 $ 44,390 $ 48,756 $176,834 --------- --------- --------- --------- --------- Income from operations ............................... $ 5,792 $ 6,199 $ 7,844 $ 6,950 $ 26,785 Interest expense ..................................... (1,594) (1,507) (1,448) (2,309) (6,858) Other income--net .................................... 4,609 3,735 1,128 1,554 11,026 --------- --------- --------- --------- --------- Income before income taxes ........................ 8,807 8,427 7,524 6,195 30,953 Income taxes ......................................... (3,452) (3,313) (3,112) (1,380) (11,257) --------- --------- --------- --------- --------- Net Income ........................................... $ 5,355 $ 5,114 $ 4,412 $ 4,815 $ 19,696 ========= ========= ========= ========= ========= Earnings Per Share Net income ........................................ $ .51 $ .49 $ .42 $ .46 $ 1.88 ========= ========= ========= ========= ========= Average number of shares outstanding .............. 10,471 10,473 10,480 10,455 10,470 ========= ========= ========= ========= ========= Diluted Earnings Per Share Net income ........................................ $ .51 $ .49 $ .42 $ .46 $ 1.87 ========= ========= ========= ========= ========= Average number of shares outstanding .............. 10,516 10,512 10,527 10,500 10,514 ========= ========= ========= ========= =========
(a) Amounts for each of the first three quarters of 1999 were reclassified to conform with the fourth quarter presentation.
1998 - --------------------------------------------------------------------------------------------------------------------------------- Total service revenues and sales ..................... $88,412 $94,943 $96,517 $101,411 $381,283 --------- --------- --------- --------- --------- Gross profit ......................................... $32,536 $36,582 $36,695 $ 38,322 $144,135 --------- --------- --------- --------- --------- Income from operations ............................... $ 3,745 $ 5,246 $ 5,891 $ 4,458 $ 19,340 Interest expense ..................................... (1,758) (1,841) (1,798) (1,396) (6,793) Other income--net .................................... 8,333 5,612 3,691 1,942 19,578 --------- --------- --------- --------- --------- Income before income taxes ........................ 10,320 9,017 7,784 5,004 32,125 Income taxes ......................................... (4,069) (3,451) (3,092) (1,604) (12,216) --------- --------- --------- --------- --------- Net Income ........................................... $ 6,251 $ 5,566 $ 4,692 $ 3,400 $ 19,909 ========= ========= ========= ========= ========= Earnings Per Share Net income ........................................ $ .63 $ .56 $ .47 $ .33 $ 1.98 ========= ========= ========= ========= ========= Average number of shares outstanding .............. 9,989 10,005 10,003 10,231 10,058 ========= ========= ========= ========= ========= Diluted Earnings Per Share Net income ........................................ $ .62 $ .55 $ .47 $ .33 $ 1.97 ========= ========= ========= ========= ========= Average number of shares outstanding .............. 10,090 10,057 10,032 10,274 10,100 ========= ========= ========= ========= =========
31 24 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Chemed Corporation and Subsidiary Companies FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Significant factors affecting the Company's consolidated cash flows during 1999 and financial position at December 31, 1999, include the following: o Operations generated cash of $27.5 million; o Capital expenditures totaled $22.4 million; o The Company used $15.5 million of cash to finance purchase business combinations; o Sales of investments generated cash proceeds of $7.7 million; and o The Company increased its long-term borrowings by $7.0 million. The ratio of total debt to total capital was approximately 30% at December 31, 1999, and 28% at December 31, 1998. The Company's current ratio at December 31, 1999, was 1.1 as compared with 1.4 at December 31, 1998. This decline is primarily attributable to the expenditure of $15.5 million of cash on business combinations and capital expenditures of $22.4 million, offset by a $7.0 million net increase in long-term debt during the year. The Company had $101.6 million of unused lines of credit with various banks at December 31, 1999. CASH FLOW The Company's cash flows for 1999 and 1998 are summarized as follows (in millions):
For the Years Ended December 31, ------------------- 1999 1998 ------- ------- Cash from continuing operations $ 27.5 $ 20.8 Proceeds from sales of investments 7.7 15.0 Cash dividends (22.5) (21.7) ------ ------ Cash excess after cash dividends 12.7 14.1 Capital expenditures (22.4) (22.0) Business combinations (15.5) (14.8) Net increase/(decrease) in long-term debt (excluding ESOP debt obligations) 7.0 (2.9) Net uses from discontinued operations (2.5) (5.6) Other--net (3.4) 1.6 ------ ------ Decrease in cash and cash equivalents $(24.1) $(29.6) ====== ======
For 1999, the cash excess from operations and sales of investments, less cash dividend payments, was $12.7 million as compared with $14.1 million in 1998. This excess was available to assist in funding the Company's capital expenditure requirements. In November 1999, the Board of Directors ("Board") announced a change in its dividend policy in order to position the Company to take full advantage of growth possibilities in 2000 and beyond. Under the new policy, in February 2000 the quarterly cash dividend, which has been $.53 per share for the past nine quarters, was lowered to $.10 per share for the first quarter of 2000 (payable on March 10 to holders of record February 18, 2000). Also in November, the Board announced an Exchange Offer whereby stockholders were permitted to exchange shares of capital stock for shares of Convertible Trust Preferred Securities ("Trust Securities") on a one-for-one basis. The Trust Securities pay an annual cash distribution of $2.00 per security and are convertible into capital stock at a price of $37 per security. The offer expired on January 31, 2000. Approximately 576,000 capital shares were exchanged for Trust Securities with a redemption value of approximately $15.5 million. The Trust Securities mature in 30 years and are callable after three years. It is projected that the new dividend policy, combined with the distribution requirement of the Trust Securities, will reduce the projected outlay for cash dividends in 2000 by approximately $17 million as compared with the dividend outlay for 1999. This cash will be used to accelerate acquisitions and to finance internal growth. Nonetheless, the dividend rate is set each quarter with a long-term perspective, taking into consideration the Company's financial position, earnings and cash flow, as well as interest rates, market conditions and other economic factors. COMMITMENTS AND CONTINGENCIES In connection with the sale of DuBois Chemicals Inc. ("DuBois"), the Company provided allowances and accruals relating to several long-term costs, including income tax matters, lease commitments and environmental costs. In the aggregate, the Company believes these allowances and accruals are adequate as of December 31, 1999. 32 25 Chemed Corporation and Subsidiary Companies Based on a recent assessment of Chemed's environmental-related liability under the DuBois sale agreement, Chemed's adviser has estimated Chemed's liability to be $4.2 million. As of December 31, 1999, the Company is contingently liable for additional cleanup and related costs up to a maximum of $16.9 million, for which no provision has been recorded. The Company's various loan agreements and guarantees of indebtedness contain certain restrictive covenants; however, management believes that such covenants will not adversely affect the operations of the Company. Under the most restrictive of these covenants, the Company projects that it can incur additional debt of approximately $65 million as of December 31, 1999. Since 1991, the Company has carried an investment in the mandatorily redeemable preferred stock ($27 million par value) of Vitas Healthcare Corporation ("Vitas"), a privately held provider of hospice services to the terminally ill. During its three most recent fiscal years, Vitas has increased net income and is continuing to pursue various long-term financing alternatives. During 1998, Vitas and the Company agreed to extend the redemption dates on the preferred stock to April 1, 2000, to facilitate Vitas' pursuit of long-term financing alternatives. It is considered reasonably possible that the redemption date will again be extended in 2000. During 1999, Vitas made payments of $1.7 million on preferred dividends due in 1999. An additional $1.2 million was paid in January 2000, leaving $715,000 in arrears as of January 31, 2000. Payment of the arrearage is anticipated during the first half of 2000. On the basis of information currently available, management believes its investment in Vitas is fully recoverable and that no impairment exists. It is management's opinion that the Company has no long-range commitments that would have a significant impact on its liquidity, financial condition or the results of its operations. Due to the nature of the environmental liabilities, it is not possible to forecast the timing of the cash payments for these potential liabilities. Based on the Company's available credit lines, sources of borrowing and liquid investments, management believes its sources of capital and liquidity are satisfactory for the Company's needs for the foreseeable future. RESULTS OF OPERATIONS Set forth below by business segment are the growth in sales and service revenues and the aftertax earnings margin:
Percent Increase/(Decrease) in Service Revenues and Sales ----------------------------- 1999 1998 vs.1998 vs.1997 ------- ------- Roto-Rooter 26% 25% Patient Care 9 (2) Service America 4 6 Total 19 12 Aftertax Earnings as a Percent of Service Revenues and Sales (Aftertax Margin) ----------------------------- 1999 1998 1997 ---- ---- ---- Roto-Rooter 6.0% 5.5% 6.2% Patient Care 2.5 2.9 2.7 Service America 3.2 3.2 3.3 Total 4.5 4.3 4.4
1999 VERSUS 1998 The Roto-Rooter segment recorded service revenues and sales of $242,819,000 during 1999, an increase of 26% versus revenues of $192,050,000 in 1998. This growth was attributable primarily to Roto-Rooter's plumbing and sewer and drain cleaning businesses, both of which recorded 28% revenue increases for the 1999 period. Excluding businesses acquired in 1999 and 1998, this segment's total revenues and net income for 1999 increased 14% and 30%, respectively, versus amounts recorded in 1998. Including acquisitions, Roto-Rooter recorded a 38% increase in aftertax earnings for 1999. The operating margin of this segment increased .5%, primarily due to an increase in the gross profit margin. Revenues of the Patient Care segment increased 9% from $118,282,000 in 1998 to $128,880,000 in 1999. Excluding the revenues of businesses acquired in 1998 and 1999, revenues for 1999 declined 2% versus revenues for 1998. This revenue decline was anticipated and is primarily attributable to the implementation of the Medicare provisions of the Balanced Budget Act of 1997. Higher workers' compensation costs, as a percent of revenues, are primarily responsible for the decline in the aftertax margin from 2.9% in 1998 to 2.5% in 1999. 33 26 The Service America segment recorded total revenues of $73,900,000 during 1999, an increase of 4% versus revenues of $70,951,000 recorded in 1998. Retail sales of Service America for 1999, which account for approximately 22% of total sales, increased 15% versus such sales for 1998. Aftertax earnings for 1999 increased 2% versus aftertax earnings for 1998. The aftertax margin of this segment was 3.2% in both 1999 and 1998. Income from operations increased from $19,340,000 in 1998 to $26,785,000 in 1999, primarily as a result of significantly higher operating profit recorded by Roto-Rooter during 1999. Also reflecting strong operational performance by Roto-Rooter in 1999, earnings before interest, taxes, depreciation and amortization ("EBITDA") excluding capital gains and acquisition expenses totaled $52,109,000 in 1999, an increase of 21% versus EBITDA for 1998. Interest expense for 1999 totaled $6,858,000 versus expense of $6,793,000 recorded in 1998. Other income declined from $19,578,000 in 1998 to $11,026,000 in 1999, primarily as a result of lower gains on the sales of investments and lower interest income in 1999. The Company's effective income tax rate was 36.4% in 1999 as compared with 38.0% in 1998. The decline in the effective rate was largely attributable to adjustments recorded during 1999 from the finalization of federal income tax audits for prior years. Income from continuing operations declined from $19,909,000 ($1.98 per share) in 1998 to $19,696,000 ($1.88 per share) in 1999. Excluding acquisition expenses in 1998 ($495,000 or $.05 per share) and realized investment gains ($2,960,000 in 1999 and $7,945,000 in 1998), income from continuing operations increased 34% from $12,459,000 in 1998 ($1.24 per share) to $16,736,000 ($1.60 per share) in 1999. 1998 VERSUS 1997 The Roto-Rooter segment recorded service revenues and sales of $192,050,000 during 1998, an increase of 25% versus revenues of $153,883,000 in 1997. This growth was attributable primarily to revenue increases of 34% and 13%, respectively, in Roto-Rooter's plumbing and sewer and drain cleaning businesses for 1998. Excluding businesses acquired in 1997 and 1998, this segment's total revenues for 1998 increased 10% versus revenues recorded in 1997. Roto-Rooter recorded an 11% increase in aftertax earnings for 1998 versus 1997, despite a decline in its aftertax margin from 6.2% in 1997 to 5.5% in 1998. This margin decline is due primarily to a lower gross margin in 1998, partially offset by lower general and administrative expenses as a percentage of total revenues. The lower gross margin is primarily due to a shift in product mix to plumbing repair and HVAC services. Revenues of the Patient Care segment declined 2% from $121,143,000 in 1997 to $118,282,000 in 1998. Excluding the revenues of businesses acquired in 1997 and 1998, revenues for 1998 declined 8% versus revenues for 1997. These revenue declines were anticipated and were attributable primarily to the implementation of the Medicare provisions of the Balanced Budget Act of 1997. Good expense control nearly offset the decline in Patient Care's gross margin and thus contributed to the 7% increase in Patient Care's aftertax earnings for 1998. In addition, a favorable income tax adjustment relating to the settlement of certain state tax issues in 1998 aided in increasing Patient Care's aftertax margin from 2.7% in 1997 to 2.9% in 1998. The Service America segment recorded total revenues of $70,951,000 during 1998, an increase of 6% versus revenues of $66,703,000 recorded in 1997. Aftertax earnings for 1998 increased 4% versus aftertax earnings for 1997. The aftertax margin of this segment was 3.2% in 1998 as compared with 3.3% in 1997. Income from operations declined from $19,482,000 in 1997 to $19,340,000 in 1998, primarily as a result of incurring $752,000 of acquisition expenses in connection with pooling-of-interests transactions in 1998. 34 27 EBITDA excluding capital gains and acquisition expenses totaled $43,126,000 in 1998, an increase of 8% versus EBITDA for 1997. Interest expense for 1998 totaled $6,793,000, a decline of $3,759,000 versus expense of $10,552,000 recorded in 1997, largely as a result of the reduction of the Company's long-term debt. Other income increased from $18,951,000 in 1997 to $19,578,000 in 1998, primarily as a result of higher gains on the sales of investments in 1998 combined with higher interest income in 1998. The Company's effective income tax rate was 38.0% in 1998 as compared with 38.8% in 1997. Income from continuing operations increased from $17,077,000 ($1.72 per share) in 1997 to $19,909,000 ($1.98 per share) in 1998. Excluding acquisition expenses in 1998 ($495,000 or $.05 per share) and realized investment gains ($7,945,000 in 1998 and $7,652,000 in 1997), income from continuing operations increased 32% from $9,425,000 in 1997 ($.95 per share) to $12,459,000 ($1.24 per share) in 1998. Net income for 1998 was $19,909,000 ($1.98 per share) and included aftertax acquisition expenses of $495,000 ($.05 per share). Net income for 1997 was $30,237,000 ($3.04 per share) and included $13,160,000 ($1.32 per share) from discontinued operations (primarily related to The Omnia Group and National Sanitary Supply Company). YEAR 2000 The Company's Year 2000 ("Y2K") Project ("Project") has addressed the issue of computer systems and hardware being unable to distinguish between the years 1900 and 2000. Mission-critical systems of all company operations were Y2K-ready by December 31, 1999. In addition, in December 1999, Patient Care and its Medicaid intermediaries began processing claims electronically with Y2K-ready systems. Through January 31, 2000, the Company has experienced no significant Y2K issues either internally or with its trading partners. While the Company currently anticipates its systems and its key trading partners' systems will operate without major incident throughout 2000, there can be no assurance that the failure of systems outside its control or immediate sphere of influence will not materially impact its operations. REGULATORY ENVIRONMENT Healthcare reform legislation enacted by Congress challenges healthcare providers to provide quality services while facing mounting pressure to contain costs associated with entitlement programs funded by the federal government. Patient Care is adapting to the demands of this regulatory environment by eliminating certain high-cost programs and by leveraging its existing infrastructure to increase productivity. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 REGARDING FORWARD-LOOKING INFORMATION This report contains forward-looking statements which are 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 projected impact of reduced cash dividends, future dividend policy, projected workers' compensation costs, contingent environmental liability, full realization of deferred income tax assets, the projected impact of future acquisitions upon company operations and the adequacy of Y2K-readiness of systems outside the Company's sphere of influence. The Company's ability to deal with the unknown outcomes of these events may affect the reliability of its projections and other financial matters. 35 28 CORPORATE OFFICERS AND DIRECTORS CORPORATE OFFICERS EDWARD L. HUTTON Chairman & Chief Executive Officer KEVIN J. MCNAMARA President TIMOTHY S. O'TOOLE Executive Vice President & Treasurer PAUL C. VOET Executive Vice President SANDRA E. LANEY Senior Vice President & Chief Administrative Officer ARTHUR V. TUCKER, JR. Vice President & Controller NAOMI C. DALLOB Vice President & Secretary JAMES H. DEVLIN Vice President THOMAS C. HUTTON Vice President SPENCER S. LEE Vice President DAVID J. LOHBECK Vice President JOHN M. MOUNT Vice President DAVID G. SPARKS Vice President JANELLE M. JESSIE Assistant Vice President ANTHONY D. VAMVAS III Assistant Vice President PAULA W. KITTNER Assistant Treasurer MARK W. STEPHENS Assistant Treasurer MARIANNE LAMEY Assistant Controller LAURA A. VOLKER Assistant Controller LISA A. DITTMAN Assistant Secretary JOYCE A. LAWRENCE Assistant Secretary DIRECTORS EDWARD L. HUTTON Chairman & Chief Executive Officer, Chemed Corporation KEVIN J. MCNAMARA President, Chemed Corporation RICK L. ARQUILLA President & Chief Operating Officer, Roto-Rooter Services Company JAMES H. DEVLIN Vice President, Chemed Corporation CHARLES H. ERHART, JR. Former President, W.R. Grace & Co. (retired) JOEL F. GEMUNDER President, Omnicare Inc. PATRICK P. GRACE Executive Vice President, Kingdom Group LLC; President, MLP Capital Inc. THOMAS C. HUTTON Vice President, Chemed Corporation WALTER L. KREBS Former Senior Vice President & Chief Financial Officer, Service America Systems Inc. (retired) SANDRA E. LANEY Senior Vice President & Chief Administrative Officer, Chemed Corporation SPENCER S. LEE Vice President, Chemed Corporation; Chairman & Chief Executive Officer, Roto-Rooter Inc. JOHN M. MOUNT Vice President, Chemed Corporation; President & Chief Executive Officer, Service America Systems Inc. TIMOTHY S. O'TOOLE Executive Vice President & Treasurer, Chemed Corporation; Chairman & Chief Executive Officer, Patient Care Inc. DONALD E. SAUNDERS President, DuBois Chemicals Division, DiverseyLever Inc. PAUL C. VOET Executive Vice President, Chemed Corporation GEORGE J. WALSH III Partner, Gould & Wilkie LLP (Law Firm, New York, New York) DIRECTORS EMERITI NEAL GILLIATT HERMAN B WELLS 36 29 CORPORATE INFORMATION CORPORATE HEADQUARTERS Chemed Corporation 2600 Chemed Center 255 East Fifth Street Cincinnati, Ohio 45202-4726 513-762-6900 www.chemed.com - -------------------------------------------------------------------------------- TRANSFER AGENTS & REGISTRARS Chemed Capital Stock: Norwest Bank Minnesota, N.A. Shareowner Services All questions relating to administration of CHEMED CAPITAL STOCK ownership must be handled by NORWEST. - - Mailing Address: Norwest Bank Minnesota, N.A. Shareowner Services P.O. Box 64854 St. Paul, Minnesota 55164-0854 - - Telephone: TOLL-FREE 800-468-9716 - - E-mail: stocktransfer@norwest.com Norwest also maintains a Web site at www.norwest.com/business-stocktransfer from which answers to frequently asked questions and various forms may be obtained. CONVERTIBLE TRUST PREFERRED SECURITIES: Firstar Bank, N.A. Corporate Trust Services All questions relating to administration of CONVERTIBLE TRUST PREFERRED SECURITIES ownership must be handled by FIRSTAR. - - Mailing Address: Firstar Bank, N.A. Corporate Trust Services Suite 301 1555 North RiverCenter Drive Milwaukee, Wisconsin 53212 - - Telephone: TOLL-FREE 800-637-7549 Preferred Security holders may also contact Firstar via its Web site at www.firstarcorporatetrust.com, selecting the option to "Contact Us." - -------------------------------------------------------------------------------- CORPORATE INQUIRIES Questions concerning company operations and financial results should be directed to Timothy S. O'Toole, Executive Vice President & Treasurer, at Chemed corporate headquarters by writing or by calling 800-2CHEMED (800-224-3633) or 513-762-6702. Annual and quarterly reports, press releases, and other printed materials may be obtained from Chemed Investor Relations by writing or by calling 800- 2CHEMED (800-224-3633) or 513-762-6463. Printed materials may also be viewed and downloaded from Chemed's Web site at www.chemed.com. INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP Cincinnati, Ohio 45202 - -------------------------------------------------------------------------------- FORM 10-K Additional information about Chemed is available in the Annual Report on Form 10-K. Chemed Investor Relations will furnish copies without charge. - -------------------------------------------------------------------------------- DIVIDEND REINVESTMENT PLAN FOR HOLDERS OF 25 OR MORE SHARES The Chemed Automatic Dividend Reinvestment Plan is available to Chemed shareholders of record owning a minimum of 25 shares of Chemed Capital Stock. A plan brochure, including fee schedule, and enrollment information are available from the Dividend Reinvestment Agent, Norwest Bank Minnesota, N.A., at the address listed above. Convertible Trust Preferred Securities are not eligible to participate in this Plan. - -------------------------------------------------------------------------------- ANNUAL MEETING The Annual Meeting of Shareholders of Chemed Capital Stock will be held on Monday, May 15, 2000, at 2 p.m. in the Grand Ballroom of The Phoenix Club, 812 Race Street, Cincinnati, Ohio. - -------------------------------------------------------------------------------- NUMBER OF SHAREHOLDERS The approximate number of shareholders of record of Chemed Capital Stock was 4,864 on December 31, 1999, and 5,271 on December 31, 1998. (These numbers do not include shareholders with shares held under beneficial ownership or within clearinghouse positions of brokerage firms and banks.) - -------------------------------------------------------------------------------- STOCK EXCHANGE LISTING The company's capital stock is listed on the New York Stock Exchange under the ticker symbol CHE. - -------------------------------------------------------------------------------- CAPITAL STOCK & DIVIDEND DATA The high and low closing prices for Chemed Capital Stock during 1999 and 1998 and dividends per share paid by quarter during these years are shown below: Closing -------------------------- Dividends High Low Paid - -------------------------------------------------------------------------------- 1999 First Quarter $33 13/16 $25 3/4 $ .53 Second Quarter 33 7/8 26 5/16 .53 Third Quarter 33 7/16 29 1/4 .53 Fourth Quarter 30 1/8 24 15/16 .53 1998 First Quarter $42 5/16 $38 $ .53 Second Quarter 41 1/4 32 9/16 .53 Third Quarter 34 11/16 25 9/16 .53 Fourth Quarter 34 7/8 28 1/8 .53 30 CHEMED CORPORATION 2600 Chemed Center 255 East Fifth Street Cincinnati, Ohio 45202-4726 Visit our company Web sites at www.chemed.com, www.rotorooter.com, www.patientcare.com, www.serviceamerica.com, and www.ccr.com. (Recycled Paper Logo) Printed on recycled paper EX-21 11 EXHIBIT 21 1 EXHIBIT 21 SUBSIDIARIES OF CHEMED CORPORATION The following is a list of subsidiaries of the Company as of December 31, 1999. Other subsidiaries which have been omitted from the list would not, when considered in the aggregate, constitute a significant subsidiary. Each of the companies is incorporated under the laws of the state following its name. The percentage given for each company represents the percentage of voting securities of such company owned by the Company or, where indicated, subsidiaries of the Company as at December 31, 1999. All of the majority owned companies listed below are included in the consolidated financial statements as of December 31, 1999. ACD, Inc. (Florida, 100% by Starburst, Inc.) AJJ, Inc. (Florida, 100% by Starburst, Inc.) ARR, Enterprises, Inc. (Texas, 100% by Starburst, Inc.) Cadre Computer Resources, Inc. (Delaware, 100%) Caring Companions, Inc. (Illinois, 100% by Patient Care, Inc. Catons' Plumbing, Heating & Air Conditioning, Inc. (Maryland, 100%) by Roto-Rooter Services Company) Complete Plumbing Services, Inc. (New York, 49% by Roto-Rooter Services Company; included within the consolidated financial statements as a consolidated subsidiary) Consolidated HVAC, Inc. (Ohio, 100% by Roto-Rooter Services Company) Dell Healthcare, Inc. (Illinois, 100% by Patient Care, Inc.) Elder Care Solutions, Inc. (Kentucky, 100% by Patient Care, Inc.) Jet Resource, Inc. (Delaware, 100%) Medical Personnel Services, Inc. (Maryland, 100% by Patient Care, Inc.) National Home Care, Inc. (New York, 100% by Patient Care, Inc.) Nurotoco of Massachusetts, Inc. (Massachusetts, 100% by Roto-Rooter Services Company) Nurotoco of New Jersey, Inc. (Delaware, 80% by Roto-Rooter Services Company) OCR Holding Company (Nevada, 100%) OCR Michigan, Inc. (Delaware, 100% by OCR Holding Company) Patient Care, Inc. (Delaware, 100%) Patient Care Medical Services, Inc. (New Jersey, 100% by Patient Care, Inc.) Patient Care Medical Services, Inc. (Ohio, 100% by Patient Care, Inc.) Priority Care, Inc. (Connecticut, 100% by Patient Care, Inc.) Roto-Rooter Canada, Ltd. (British Columbia, 100% by Roto-Rooter Services Company) Roto-Rooter Corporation (Iowa, 100% by Roto-Rooter, Inc.) Roto-Rooter Development Company (Delaware, 100% by Roto-Rooter Corporation) Roto-Rooter, Inc. (Delaware, 100%) Roto-Rooter Management Company (Delaware, 100% by Roto-Rooter, Inc.) Roto-Rooter Services Company (Iowa, 100% by Roto-Rooter, Inc.) RR Plumbing Services Corporation (New York, 49% by Roto-Rooter Services Company; included within the consolidated financial statements as a consolidated subsidiary) R.R. UK, Inc. (Delaware, 100% by Roto-Rooter, Inc.) Service America Network, Inc. (Florida, 100% by Service America Systems, Inc.) Service America Systems, Inc. (Florida, 100% by Chemed Corporation) Starburst, Inc. (Texas, 100% by Roto-Rooter Services Company) Sure-Flow, Inc. (California, 100% by Roto-Rooter Services Company) EX-23 12 EXHIBIT 23 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 33-28594, 33-9549, 2-87202, 2-80712, 33-65244, 33-61063, 333-34525, 333-87071 and 333-87073) of Chemed Corporation of our report dated February 1, 2000 appearing on page 11 of the 1999 Annual Report to Stockholders which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears on page S-2 of this Form 10-K. /s/ PricewaterhouseCoopers - --------------------------- PricewaterhouseCoopers Cincinnati, Ohio March 29, 2000 EX-24 13 EXHIBIT 24 1 EXHIBIT 24 POWER OF ATTORNEY The undersigned director of CHEMED CORPORATION ("Company") hereby appoints EDWARD L. HUTTON, KEVIN J. MCNAMARA and NAOMI C. DALLOB as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. Dated: March 13, 2000 /s/ Rick L. Arquilla ---------------------------------- Rick L. Arquilla 2 POWER OF ATTORNEY The undersigned director of CHEMED CORPORATION ("Company") hereby appoints EDWARD L. HUTTON, KEVIN J. MCNAMARA and NAOMI C. DALLOB as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. Dated: March 8, 2000 /s/ James H. Devlin ---------------------------------- James H. Devlin 3 POWER OF ATTORNEY The undersigned director of CHEMED CORPORATION ("Company") hereby appoints EDWARD L. HUTTON, KEVIN J. MCNAMARA and NAOMI C. DALLOB as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. Dated: March 8, 2000 /s/ Charles H. Erhart, Jr. ------------------------------------ Charles H. Erhart, Jr. 4 POWER OF ATTORNEY The undersigned director of CHEMED CORPORATION ("Company") hereby appoints EDWARD L. HUTTON, KEVIN J. MCNAMARA and NAOMI C. DALLOB as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. Dated: March 20, 2000 /s/ Joel F. Gemunder ---------------------------------- Joel F. Gemunder 5 POWER OF ATTORNEY The undersigned director of CHEMED CORPORATION ("Company") hereby appoints EDWARD L. HUTTON, KEVIN J. MCNAMARA and NAOMI C. DALLOB as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. Dated: 13, 2000 /s/ Patrick P. Grace ------------------------------------ Patrick P. Grace 6 POWER OF ATTORNEY The undersigned director of CHEMED CORPORATION ("Company") hereby appoints EDWARD L. HUTTON, KEVIN J. MCNAMARA and NAOMI C. DALLOB as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. Dated: 17, 2000 /s/ Thomas C. Hutton ---------------------------------- Thomas C. Hutton 7 POWER OF ATTORNEY The undersigned director of CHEMED CORPORATION ("Company") hereby appoints EDWARD L. HUTTON, KEVIN J. MCNAMARA and NAOMI C. DALLOB as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. Dated: March 9, 2000 /s/ Walter L. Krebs ---------------------------------- Walter L. Krebs 8 POWER OF ATTORNEY The undersigned director of CHEMED CORPORATION ("Company") hereby appoints EDWARD L. HUTTON, KEVIN J. MCNAMARA and NAOMI C. DALLOB as her true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. Dated: 20, 2000 /s/ Sandra E. Laney ---------------------------------- Sandra E. Laney 9 POWER OF ATTORNEY The undersigned director of CHEMED CORPORATION ("Company") hereby appoints EDWARD L. HUTTON, KEVIN J. MCNAMARA and NAOMI C. DALLOB as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. Dated: March 7, 2000 /s/ Spencer S. Lee ----------------------------------- Spencer S. Lee 10 POWER OF ATTORNEY The undersigned director of CHEMED CORPORATION ("Company") hereby appoints EDWARD L. HUTTON, KEVIN J. MCNAMARA and NAOMI C. DALLOB as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. Dated: March 8, 2000 /s/ John M. Mount -------------------------------- John M. Mount 11 POWER OF ATTORNEY The undersigned director of CHEMED CORPORATION ("Company") hereby appoints EDWARD L. HUTTON, KEVIN J. MCNAMARA and NAOMI C. DALLOB as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. Dated: March 10, 2000 /s/ Timothy S. O'Toole ----------------------------------- Timothy S. O'Toole 12 POWER OF ATTORNEY The undersigned director of CHEMED CORPORATION ("Company") hereby appoints EDWARD L. HUTTON, KEVIN J. MCNAMARA and NAOMI C. DALLOB as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. Dated: March 13, 2000 /s/ Donald E. Saunders ------------------------------------- Donald E. Saunders 13 POWER OF ATTORNEY The undersigned director of CHEMED CORPORATION ("Company") hereby appoints EDWARD L. HUTTON, KEVIN J. MCNAMARA and NAOMI C. DALLOB as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. Dated: March 8, 2000 /s/ Paul C. Voet -------------------------------------- Paul C. Voet 14 POWER OF ATTORNEY The undersigned director of CHEMED CORPORATION ("Company") hereby appoints EDWARD L. HUTTON, KEVIN J. MCNAMARA and NAOMI C. DALLOB as his true and lawful attorneys-in-fact for the purpose of signing the Company's Annual Report on Form 10-K for the year ended December 31, 1999, and all amendments thereto, to be filed with the Securities and Exchange Commission. Each of such attorneys-in-fact is appointed with full power to act without the other. Dated: March 9, 2000 /s/ George J. Walsh III ------------------------------------- George J. Walsh III EX-27 14 EXHIBIT 27
5 THIS SCHEDULE CONTAINS FINANCIAL INFORMATION EXTRACTED FROM FORM 8-K OF CHEMED CORPORATION FOR THE QUARTER ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000019584 CHEMED CORPORATION 1,000 U.S. DOLLARS YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 1 17,282 0 60,443 (4,554) 9,794 111,802 127,138 (55,410) 421,303 98,428 78,580 0 0 13,665 198,379 421,303 0 453,593 0 276,759 0 1,262 6,858 30,953 11,257 19,696 0 0 0 19,696 1.88 1.87
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