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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 1997
Commission File Number 1-8351
CHEMED CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 31-0791746
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2600 Chemed Center, 255 E. Fifth Street, Cincinnati, Ohio 45202
(Address of principal executive offices) (Zip code)
(513) 762-6900
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
---- ----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Amount Date
Capital Stock 10,032,599 Shares April 30, 1997
$1 Par Value
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Page 1 of 12
CHEMED CORPORATION AND
SUBSIDIARY COMPANIES
Index
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheet -
March 31, 1997 and
December 31, 1996 3
Consolidated Statement of Income -
Three months ended
March 31, 1997 and 1996 4
Consolidated Statement of Cash Flows -
Three months ended
March 31, 1997 and 1996 5
Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7 - 10
PART II. OTHER INFORMATION 11
Page 2 of 12
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands except share and per share data)
UNAUDITED
March 31, December 31,
1997 1996
---------- ----------
ASSETS
Current assets
Cash and cash equivalents $ 17,797 $ 11,935
Accounts receivable, less allowances of $2,971
(1996 - $2,925) 79,719 77,622
Inventories
Raw materials 6,615 6,515
Finished goods and general merchandise 44,814 45,873
Statutory deposits 18,133 19,962
Other current assets 32,234 30,452
---------- ----------
Total current assets 199,312 192,359
Other investments 44,793 62,098
Properties and equipment, at cost less accumulated
depreciation of $59,360 (1996 - $56,653) 84,184 83,259
Identifiable intangible assets less accumulated
amortization of $4,256 (1996 - $3,977) 17,016 17,295
Goodwill less accumulated amortization of $26,672
(1996 - $25,292) 185,847 186,933
Other assets 17,483 17,406
---------- ----------
Total Assets $ 548,635 $ 559,350
========== ==========
LIABILITIES
Current liabilities
Accounts payable $ 25,575 $ 25,747
Bank notes and loans payable 5,000 5,000
Current portion of long-term debt 13,074 12,550
Income taxes 9,787 5,209
Deferred contract revenue 25,184 24,735
Other current liabilities 45,309 51,307
---------- ----------
Total current liabilities 123,929 124,548
Deferred income taxes 2,358 6,650
Long-term debt 158,092 158,168
Other liabilities and deferred income 40,105 41,273
Minority interest 11,215 10,820
---------- ----------
Total Liabilities 335,699 341,459
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock-authorized 15,000,000 shares $1 par;
issued 12,858,264 shares (1996 - 12,767,565 shares) 12,858 12,768
Paid-in capital 153,785 150,296
Retained earnings 142,583 139,262
Treasury stock - 2,825,975 shares
(1996 - 2,815,655 shares), at cost (83,314) (82,943)
Unearned compensation (28,656) (27,554)
Unrealized appreciation on investments 15,680 26,062
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Total Stockholders' Equity 212,936 217,891
---------- ----------
Total Liabilities and Stockholders' Equity $ 548,635 $ 559,350
========== ==========
See accompanying notes to unaudited financial statements.
Page 3 of 12
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
(in thousands except per share data)
Three Months Ended
March 31,
----------------------
1997 1996
--------- ---------
Sales $ 94,932 $ 99,763
Service revenues 73,620 67,698
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Total sales and service revenues 168,552 167,461
--------- ---------
Cost of goods sold 64,311 68,590
Cost of services provided 45,104 41,113
Selling and marketing expenses 24,698 24,258
General and administrative expenses 24,037 23,516
Depreciation 3,947 2,973
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Total costs and expenses 162,097 160,450
--------- ---------
Income from operations 6,455 7,011
Interest expense (2,756) (1,931)
Other income - net 10,227 16,298
--------- ---------
Income before income taxes
and minority interest 13,926 21,378
Income taxes (5,333) (7,974)
Minority interest in earnings of subsidiaries (106) (1,207)
--------- ---------
Net Income $ 8,487 $ 12,197
========= =========
Earnings Per Common Share
Net income $ .85 $ 1.24
========= =========
Average number of shares outstanding 10,002 9,867
========= =========
Cash Dividends Paid Per Share $ .52 $ .52
========= =========
See accompanying notes to unaudited financial statements.
Page 4 of 12
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(in thousands)
Three Months Ended
March 31,
-----------------------
1997 1996
--------- ---------
Cash Flows From Operating Activities
Net income $ 8,487 $12,197
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of investments (9,079) (14,208)
Depreciation and amortization 5,927 4,611
Provision for deferred income taxes 202 (2,631)
Provision for uncollectible accounts receivable 183 459
Minority interest in earnings of subsidiaries 106 1,207
Changes in operating assets and liabilities,
excluding amounts acquired in business
combinations
(Increase)/decrease in accounts
receivable (2,105) 4,960
Decrease in inventories and other current
assets 215 2,789
(Increase)/decrease in statutory deposits 1,829 (191)
Decrease in accounts payable, deferred
contract revenue and other current
liabilities (2,483) (5,307)
Increase in income taxes 5,010 11,001
Other - net (1,693) (2,771)
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Net cash provided by operating activities 6,599 12,116
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Cash Flows From Investing Activities
Proceeds from sale of investments 10,474 26,556
Capital expenditures (4,424) (4,177)
Business combinations, net of cash acquired (3,674) (2,198)
Net cash outflow from discontinued operations (661) (4,294)
Other - net 105 252
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Net cash provided/(used) by investing activities 1,820 16,139
--------- ---------
Cash Flows From Financing Activities
Proceeds from issuance of long-term debt 25,000 -
Repayment of long-term debt (23,066) (64)
Dividends paid (5,217) (5,137)
Issuance of capital stock 55 165
Purchase of treasury stock - (870)
Other - net 671 429
--------- ---------
Net cash used by financing activities (2,557) (5,477)
--------- ---------
Increase In Cash And Cash Equivalents 5,862 22,778
Cash and cash equivalents at beginning of period 11,935 19,187
--------- ---------
Cash and cash equivalents at end of period $ 17,797 $41,965
========= =========
See accompanying notes to unaudited financial statements.
Page 5 of 12
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
Notes to Unaudited Financial Statements
1. The accompanying unaudited consolidated financial statements
have been prepared in accordance with Rule 10-01 of SEC
Regulation S-X. Consequently, they do not include all the
disclosures required under generally accepted accounting
principles for complete financial statements. However, in
the opinion of the management of Chemed Corporation (the
"Company"), the financial statements presented herein contain
all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial
position, results of operations and cash flows of the Company
and its consolidated subsidiaries ("Chemed"). For further
information regarding Chemed's accounting policies, refer to
the consolidated financial statements and notes included in
Chemed's Annual Report on Form 10-K for the year ended
December 31, 1996.
2. Primary earnings per common share are computed using the
weighted average number of shares of capital stock
outstanding and exclude the dilutive effect of outstanding
stock options as it is not material.
In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 128 ("SFAS 128"), Earnings Per Share, effective for
reporting periods ending after December 15, 1997.
Adoption of SFAS 128 in December 1997 is not expected to
impact the Company's reported earnings per share.
3. In March 1997, the Company borrowed $25 million under a long
term note agreement ("Senior Notes") with New York Life
Insurance Company and New York Life Insurance and Annuity
Corporation. The Senior Notes bear interest at 7.31% per
annum, payable on March 15 and September 15 of each year.
Principal payments of $5,000,000 are due annually on March
15, 2005 through 2009. The proceeds of the Senior Notes were
used to reduce borrowings under the Company's revolving
credit agreement with Bank of America.
Page 6 of 12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Financial Condition
- -------------------
Cash and cash equivalents increased from $11.9 million
at December 31, 1996 to $17.8 million at March 31, 1997,
primarily due to the sale of investments during the first quarter
of 1997. Other investments declined from $62.1 million at
December 31, 1996 to $44.8 million at March 31, 1997 due to the
sale of investments ($10.5 million) and to a decline in market
prices of investments owned during the quarter ($6.8 million).
Income taxes increased from $5.2 million at December
31, 1996 to $9.8 million at March 31, 1997 due to the accrual of
income taxes on first quarter income and the lack of required
federal tax payments in 1997. Other current liabilities declined
from $51.3 million at December 31, 1996 to $45.3 million due to
the payment in February 1997 of 1996 incentive compensation and
to the payment in March 1997 of a contingent payment related to
the 1994 acquisition of Patient Care.
Vitas Healthcare Corporation, ("Vitas"), the privately-
held provider of hospice services to the terminally ill in which
the Company carries an investment of $27 million of redeemable
preferred stock, is continuing to explore long-term financing
alternatives to increase its liquidity. On the basis of current
information, management believes the Company's investment in
Vitas is fully recoverable and that no permanent impairment
exits.
At March 31, 1997 Chemed had approximately $50.3
million of unused lines of credit with various banks. Management
believes its liquidity and sources of capital are satisfactory
for the Company's needs in the foreseeable future.
Page 7 of 12
Results of Operations
- ---------------------
Sales and service revenues and operating profit from
continuing operations by business segment follow (in thousands):
Three Months Ended
March 31,
-------------------
1997 1996
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Sales and Service
Revenues
- -----------------
Roto-Rooter $ 51,724 $ 47,783
National Sanitary Supply 74,349 77,277
Patient Care 25,933 23,890
Omnia Group 16,546 18,511
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Total $168,552 $167,461
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Operating Profit
- ----------------
Roto-Rooter $ 4,461 $ 4,199
National Sanitary Supply 1,434 1,884
Patient Care 985 1,073
Omnia Group 688 1,493
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Total $ 7,568 $ 8,649
======== ========
Data relating to (a) the increase or decrease in sales and
service revenues and (b) operating profit as a percent of sales
and service revenues are set forth below:
Sales and Operating
Service Revenues Profit as a
% Increase/ % of Sales
(Decrease) (Operating Margin)
---------------- ---------------
1997 vs. 1996 1997 1996
---------------- ---------------
Roto-Rooter 8 % 8.6% 8.8%
National Sanitary Supply (4) 1.9 2.4
Patient Care 9 3.8 4.5
Omnia Group (11) 4.2 8.1
Total 1 4.5 5.2
Page 8 of 12
Sales and service revenues for the Roto-Rooter segment
for the first quarter of 1997 totalled $51,724,000, an increase
of 8% over the $47,783,000 recorded in the first quarter of 1996.
Revenues of the plumbing services business, the drain cleaning
business and the service contract business increased 10%, 6% and
7%, respectively, for the first quarter of 1997, as compared with
revenues recorded in the first quarter of 1996. These revenues
accounted for 26%, 32% and 31%, respectively, of Roto-Rooter's
total sales and service revenues during the 1997 period. The
operating margin of the Roto-Rooter segment in the first quarter
of 1997 was 8.6% as compared with 8.8% during the first quarter
of 1996. This decline was attributable to the additional
goodwill amortization recorded in the 1997 period due to the
purchase of Roto-Rooter's minority interest by Chemed in
September 1996. Excluding this additional amortization the
operating margin for the first quarter of 1997 would have been
9.4%, reflecting lower general administrative expenses as a
percent of sales during the 1997 period.
Sales of the National Sanitary Supply segment for the
first quarter of 1997 totalled $74,349,000 as compared with
$77,277,000 in the prior year first quarter. Also, the operating
margin for the first quarter of 1997 was 1.9% as compared with
2.4% during the comparable period of 1996. These declines were
due to the loss in the first quarter of 1996 of a large fast-food
customer, as well as deflationary pricing in National Sanitary
Supply's paper line. The loss of this customer will no longer
impact revenue comparisons beginning in the second quarter of
1997.
Total revenues of the Patient Care segment increased 9%
from $23,890,000 during the first quarter of 1996 to $25,933,000
in the first quarter of 1997. This revenue increase is
attributable to increased business referrals as well as to
growing demand for home-based health care services. The
operating margin declined from 4.5% during the first quarter of
1996 to 3.8% during the first quarter of 1997, largely as a
result of a lower gross margin percentage during the 1997
quarter. This lower gross margin reflects lower reimbursement
rates, particularly in the New York market. Patient Care is
aggressively increasing training classes for new home-health care
aides in order to lower its overall cost of labor and to improve
its margin. Partially offsetting this gross margin decline were
lower general and administrative expenses as a percent of sales
during the 1997 quarter.
Page 9 of 12
Sales of the Omnia segment declined 11% in the first
quarter of 1997, from $18,511,000 in the first quarter of 1996 to
$16,546,000 in the first quarter of 1997. Also, the operating
margin of the Omnia segment declined from 8.1% during the first
quarter of 1996 to 4.2% during the comparable period of 1997.
These declines were due primarily to lower paper-product selling
prices in 1997 as compared with the first quarter of 1996. In
addition, operating expenses increased in 1997, due to favorable
expense reductions recorded in the first quarter of 1996.
Significantly, Omnia has maintained its market share, and the
gross margin in the first quarter of 1997 increased when compared
with the gross margin for the last quarter of 1996.
Income from operations declined from $7,011,000 in the
first three months in 1996 to $6,455,000 during the first three
months of 1997, largely as a result of lower operating profit in
the National Sanitary Supply and Omnia Group segments, offset
partially by favorable reductions in corporate expenses.
Interest expense for the first quarter increased from $1,931,000
during 1996 to $2,756,000 during 1997, largely due to the
increase in total debt resulting from Chemed's purchase of the
Roto-Rooter minority interest in September 1996.
Other income--net decreased from $16,298,000 in the
first quarter of 1996 to $10,227,000 in the first quarter of
1997, primarily as a result of lower investment gains recorded in
the 1997 period. During the first quarter of 1997 the Company
recorded gains on the sales of investments aggregating $9,079,000
as compared with $14,208,000 during the first quarter of 1996.
Lower interest income for the 1997 period as compared with the
1996 first quarter also contributed to this decline.
The Company's effective income tax rate during the
first quarter of 1997 was 38.3% as compared with 37.3% during the
first three months of 1996. This increase was attributable to a
higher effective state and local income tax rate during the 1997
period.
Net income declined from $12,197,000 ($1.24 per share)
in the 1996 first quarter to $8,487,000 ($.85 per share) in the
1997 first quarter, largely as a result of lower investment gains
and lower income from operations recorded in the 1997 quarter.
Excluding investment gains for both periods, net income declined
from $3,273,000 ($.33 per share) for the 1996 quarter to
$2,861,000 ($.29 per share) during the 1997 quarter.
Page 10 of 12
PART II -- OTHER INFORMATION
----------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Exhibit SK 601 Page
No. Ref. No. Description No.
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1 (11) Statement re:
Computation of Per
Share Earnings E-1
2 (27) Financial Data
Schedule E-2 and E-3
(b) Reports on Form 8-K - None
--------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
Chemed Corporation
-------------------------
(Registrant)
Dated: May 12, 1997 By Naomi C. Dallob
---------------------- -------------------------
Naomi C. Dallob, Vice
President and Secretary
Dated: May 12, 1997 By Arthur V. Tucker, Jr.
---------------------- -------------------------
Arthur V. Tucker, Jr.
Vice President and
Controller (Principal
Accounting Officer)
Page 11 of 12
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF PER SHARE EARNINGS
(in thousands except per share data) EXHIBIT 11
Net Income
------------------
Three Months Ended
March 31,
-------------------
1997 1996
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Computation of Earnings Per Common
and Common Equivalent Share (a):
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Reported Income $ 8,487 $12,197
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Average number of shares used to
compute earnings per common share 10,002 9,867
Effect of unexercised stock options 39 70
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Average number of shares used to
compute earnings per common
and common equivalent share 10,041 9,937
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Earnings per common and
common equivalent share $ .85 $ 1.23
======= =======
Computation of Earnings Per
Common Share Assuming
Full Dilution (a):
- ---------------------------
Reported Income $ 8,487 $12,197
======= =======
Average number of shares used to
compute earnings per common share 10,002 9,867
Effect of unexercised stock options 39 70
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Average number of shares used to
compute earnings per common share
assuming full dilution 10,041 9,937
======= =======
Earnings per common share
assuming full dilution $ .85 $ 1.23
======= =======
- ------------------
(a) This calculation is submitted in accordance with Regulation S-K Item 601 (b) (11)
although it is not required by APB Opinion No. 15 because it results in dilution of less than
3%.
E - 1
Page 12 of 12
5
0000019584
CHEMED CORPORATION
1,000
3-MOS
DEC-31-1997
JAN-01-1997
MAR-31-1997
17,797
0
82,690
(2,971)
51,429
199,312
143,544
(59,360)
548,635
123,929
158,092
0
0
12,858
200,078
548,635
94,932
168,552
64,311
109,415
0
183
2,756
13,926
5,333
8,487
0
0
0
8,487
.85
.85
