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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, 1994
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 9,844,553 Shares April 29, 1994
$1 Par Value
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Page 1 of 15
CHEMED CORPORATION AND
SUBSIDIARY COMPANIES
Index
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheet -
March 31, 1994 and
December 31, 1993 3
Consolidated Statement of Income -
Three months ended
March 31, 1994 and 1993 4
Consolidated Statement of Cash Flows
Three months ended
March 31, 1994 and 1993 5
Notes to Unaudited Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9 - 13
PART II. OTHER INFORMATION 14
Page 2 of 15
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,
1994 1993
---------- ----------
ASSETS
Current assets
Cash and cash equivalents $ 12,833 $ 14,615
Marketable securities 1,095 1,200
Accounts receivable, less allowances of $2,512 (1993 - $2,391) 73,389 58,350
Current portion of note receivable 6,000 5,627
Inventories
Raw materials 5,364 6,977
Finished goods and general merchandise 48,441 47,768
Other current assets 12,585 10,677
---------- ----------
Total current assets 159,707 145,214
Investment in affiliate 29,913 30,656
Other Investments 50,940 37,657
Note receivable 10,413 10,413
Properties and equipment, at cost less accumulated depreciation
depreciation of $35,331 (1993 - $33,952) 73,429 70,758
Identifiable intangible assets less accumulated amortization
of $1,145 (1993 - $884) 21,905 22,166
Goodwill less accumulated amortization of $14,870 (1993 - $14,073) 109,975 94,867
Other assets 19,037 18,522
---------- ----------
Total Assets $ 475,319 $ 430,253
========== ==========
LIABILITIES
Current liabilities
Accounts payable $ 26,188 $ 24,124
Bank notes and loans payable 25,000 25,000
Current portion of long-term debt 5,856 5,688
Income taxes 23,513 20,448
Deferred contract revenue 23,547 23,783
Other current liabilities 35,760 28,606
---------- ----------
Total current liabilities 139,864 127,649
Deferred income taxes 3,195 374
Long-term debt 110,255 98,059
Other liabilities and deferred income 38,068 35,009
Minority interest 33,260 32,011
---------- ----------
Total Liabilities 324,642 293,102
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock-authorized 15,000,000 shares $1 par;
issued 12,189,499 (1993 - 12,087,894) shares 12,190 12,088
Paid-in capital 135,708 132,095
Retained earnings 100,510 99,851
Unrealized appreciation on investments 9,824 -
Treasury stock - 2,343,840 (1993 - 2,289,120) shares, at cost (65,703) (63,914)
Unearned compensation - ESOPs (41,852) (42,969)
---------- ----------
Total Stockholders' Equity 150,677 137,151
---------- ----------
Total Liabilities and Stockholders' Equity $ 475,319 $ 430,253
========== ==========
See accompanying notes to unaudited financial statements.
Page 3 of 15
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
(in thousands except per share data)
Three Months Ended
March 31,
-----------------------
1994 1993
--------- ---------
Sales $ 97,585 $ 94,932
Service revenues 54,484 25,587
--------- ---------
Total sales and service revenues 152,069 120,519
--------- ---------
Cost of goods sold 67,120 65,031
Cost of services provided 34,038 14,479
Selling and marketing expenses 23,307 21,616
General and administrative expenses 19,280 13,451
Depreciation 2,654 2,050
--------- ---------
Total costs and expenses 146,399 116,627
--------- ---------
Income from operations 5,670 3,892
Interest expense (2,047) (2,273)
Other income - net 6,313 4,670
--------- ---------
Income before income taxes, equity earnings
and minority interest 9,936 6,289
Income taxes (4,047) (1,964)
Equity in earnings of affiliate 621 479
Minority interest in earnings of subsidiaries (833) (726)
--------- ---------
Income before cumulative effect of a
change in accounting principle 5,677 4,078
Cumulative effect of a change in accounting principle - 1,651
--------- ---------
Net Income $ 5,677 $ 5,729
========= =========
Earnings Per Common Share
Income before cumulative effect of a
change in accounting principle $ .58 $ .42
========= =========
Net income $ .58 $ .59
========= =========
Average number of shares outstanding 9,824 9,766
========= =========
Cash Dividends Paid Per Share $ .51 $ .50
========= =========
See accompanying notes to unaudited financial statements.
Page 4 of 15
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(in thousands)
Three Months Ended
March 31,
-----------------------
1994 1993*
--------- ----------
Cash Flows From Operating Activities
Net income $ 5,677 $ 5,729
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on sale of investments (4,827) (2,637)
Depreciation and amortization 3,909 2,976
Proceeds from sale of trading securities 1,041 -
Purchase of trading securities (1,000) -
Minority interest in earnings of subsidiaries 833 726
Provision for uncollectible accounts receivable 418 446
Provision for deferred income taxes (212) 1,223
Cumulative effect of a change in
accounting principle - (1,651)
Changes in operating assets and liabilities,
excluding amounts acquired in business combinations
(Increase)/decrease in accounts receivable (2,686) 1,262
Decrease in inventories and other
current assets 64 2,374
(Increase)/decrease in accounts payable,
deferred contract revenue and other
current liabilities 2,019 (387)
(Increase)/decrease in income taxes 3,265 (1,636)
Other - net (1,395) (1,598)
--------- ---------
Net cash provided by operating activities 7,106 6,827
--------- ---------
Cash Flows From Investing Activities
Business combinations, net of cash acquired (14,822) (958)
Proceeds from sale of investments 8,464 2,637
Capital expenditures (5,025) (3,065)
Proceeds from sale of marketable securities - 48,690
Purchase of marketable securities - (35,810)
Other - net (302) (187)
--------- ---------
Net cash provided/(used) by investing activities (11,685) 11,307
--------- ---------
Cash Flows From Financing Activities
Proceeds from issuance of long-term debt 10,000 -
Dividends paid (5,018) (4,885)
Repayment of long-term debt (3,526) (231)
Issuance of capital stock 2,389 1,121
Purchase of treasury stock (1,789) (1,008)
Other - net 741 61
--------- ---------
Net cash used by financing activities 2,797 (4,942)
--------- ---------
Increase/(Decrease) In Cash And Cash Equivalents (1,782) 13,192
Cash and cash equivalents at beginning of period 14,615 14,527
--------- ---------
Cash and cash equivalents at end of period $ 12,833 $ 27,719
========= =========
See accompanying notes to unaudited financial statements.
* Reclassified to conform to 1994 presentation.
Page 5 of 15
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, 1993.
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.
3. Equity in earnings of affiliate represents Chemed's aftertax
share of the net income of Omnicare, Inc. ("Omnicare"), a
public company operating in the health care industry whose
stock is traded on the New York Stock Exchange. At
March 31, 1994, the Company's investment in Omnicare of
$29,913,000 was $3,239,000 in excess of its 26% equity
interest ($3,451,000 at December 31, 1993). The market value
of the Company's investment at March 31, 1994, based on that
day's closing market price of $29 3/4, was $71,117,000.
Chemed received cash dividends totaling $114,000 during the
first quarter of 1994 (1993 - $102,000).
During the first quarter of 1994, Chemed sold 149,900 shares
of its investment in Omnicare, realizing a pretax gain of
$3,184,000 ($1,817,000 aftertax).
4. Effective January 1, 1994, Chemed acquired all of the capital
stock of Patient Care Inc. ("Patient Care") for cash payments
aggregating $20,582,000, including deferred payments with a
present value of $6,271,000, plus 17,500 shares of Chemed
Capital Stock. Additional cash payments of up to $10,400,000
may be made, the amount being contingent upon the earnings of
Patient Care during the three-year period ended
Page 6 of 15
December 31, 1995. Patient Care emphasizes personal care in
the home, with services including skilled nursing; medical
and social work; nutrition; and other specialized services.
The aggregate purchase price of Patient Care and other
purchase business combinations completed in the first three
months of 1994 has been allocated as follows (in thousands):
Working capital $ 9,669
Goodwill 15,990
Long-term debt (7,000)
Other assets and liabilities - net 3,116
------------
Total net assets 21,775
Less: cash and cash
equivalents acquired (182)
Less: deferred payments (6,271)
Less: capital stock issued (500)
------------
Net cash used $ 14,822
============
Unaudited pro forma sales and service revenues, which assume
that the acquisitions of Patient Care and Encore Service
Systems Inc. (acquired in July 1993) were completed on
January 1, 1993 are as follows (in thousands):
For the three months
ended March 31,
--------------------
1994 1993
-------- --------
Total sales and service
revenues $152,069 $137,904
======== ========
These acquisitions did not materially impact income before
cumulative effect of a change in accounting principle for
1993 or 1994. In conjunction with the purchase of Patient
Care, an application for the transfer of ownership of one
region of Patient Care has been made with a state regulatory
agency and is expected to be approved during 1994.
5. Effective January 1, 1994, Chemed adopted Statement of
Financial Accounting Standards No. 115 ("SFAS 115"),
"Accounting for Certain Investments in Debt and Equity
Securities." Accordingly, the Company has classified its
cash equivalents and marketable securities as "trading
securities" under SFAS 115 and its investments included in
Page 7 of 15
other investments as "available for sale." The resultant
cumulative effect of adopting SFAS 115 on the Company's
statement of income in 1994 was immaterial. The cumulative
effect of adopting SFAS 115 on the Company's balance sheet as
of January 1, 1994 was to increase stockholders' equity by
$12,975,000.
As a result of adopting SFAS 115, investments in debt and
marketable equity instruments are recorded at their fair
value at March 31, 1994 and nonmarketable equity investments
are recorded at cost. Such investments at December 31, 1993
were recorded at amortized cost, which approximated their
fair value.
In computing realized gains or losses on the sale of
investments, the Company uses the "specific identification"
method to determine the cost of investments sold.
6. On March 4, 1994, the Company entered into a $10,000,000 term
loan agreement ("Agreement") with Fifth Third Bank. The
interest rate is variable and is based on current market
conditions, or that the option of the Company, the rate may
be fixed based on a stipulated formula. The loan matures on
March 4, 1999 and may be prepaid without penalty. The
current variable interest rate is 4.9%
7. On April 15, 1994, the Company's 89%-owned subsidiary,
National Sanitary Supply company ("National Sanitary"),
finalized the purchase of two southern California facilities
at a total cost of $3,282,000 in cash. These facilities had
been previously leased from the former owners of National
Sanitary since 1983. The lease had included an option to
purchase these facilities at their fair market value as of
November 1983.
Page 8 of 15
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Financial Condition
- - -------------------
Increases in accounts receivable, goodwill and accounts
payable from recorded amounts at December 31, 1993 to balances as
of March 31, 1994 are primarily attributable to the Company's
acquisition of Patient Care Inc. ("Patient Care") effective
January 1, 1994. The increase in other investments from
$37,657,000 at December 31, 1993 to $50,940,000 at March 31, 1994
is primarily attributable to the Company's adoption of Statement
of Financial Standards No. 115 ("SFAS 115") effective January 1,
1994. Such investments are classified as "available for sale"
and include $14,885,000 of unrealized appreciation on debt and
marketable equity investments at March 31, 1994. The aftertax
impact of this unrealized gain is included in stockholders'
equity and amounts to $9,824,000 at March 31, 1994.
The increase in income taxes from $20,448,000 at
December 31, 1993 to $23,513,000 at March 31, 1994 is primarily
attributable to the recognition of gains ($4,827,000 before
income taxes) from the sales of investments in the first quarter
of 1994. The taxes on these gains will not be paid until the
second quarter of 1994.
Increases in other current liabilities and other
liabilities and deferred income as of March 31, 1994 versus
balances at December 31, 1993 are primarily attributable to the
recording of deferred payments for the purchase of Patient Care
in January 1994. The current portion of these payments included
in other current liabilities amounts to $2,938,000 at
March 31, 1994 and the non-current portion amounts to $3,386,000.
In addition, to assist with financing the purchase of Patient
Care, the Company entered into a credit agreement with the Fifth
Third Bank of Cincinnati, Ohio in March 1994 to borrow
$10,000,000 for a period of five years.
At March 31, 1994 Chemed had approximately $34,250,000
of unused lines of credit with various banks.
Page 9 of 15
Results of Operations
- - ---------------------
Sales and service revenues and operating profit from
continuing operations by business segment follow (in thousands):
Three Months Ended
March 31,
-------------------
1994 1993
------- --------
Sales and Service
Revenues
- - -----------------
National Sanitary Supply $ 71,460 $ 69,347
Roto-Rooter 41,536 27,568
Veratex 23,966 23,604
Patient Care 15,107 -
-------- -------
Total $152,069 $120,519
======== ========
Operating Profit
- - ----------------
National Sanitary Supply $ 1,487 $ 1,402
Roto-Rooter 3,526 2,755
Veratex 1,621 1,412
Patient Care 496 -
-------- --------
Total $ 7,130 $ 5,569
======== ========
Data relating to (a) growth in sales and service revenues and (b)
operating profit as a percent of sales and service revenues for
each segment for the first three months of 1994 and 1993 are set
forth on the next page:
Page 10 of 15
Sales and Operating Profit
Service Revenues as a % of Sales
% Increase (Operating Margin)
---------------- ---------------
1994 vs. 1993 1994 1993
---------------- ---------------
National Sanitary Supply 3% 2.1% 2.0%
Roto-Rooter 51 8.5 10.0
Veratex 2 6.8 6.0
Patient Care n.a. 3.3 n.a.
Total 26 4.7 4.6
================ ===============
Sales of the National Sanitary Supply segment for the
first quarter of 1994 increased by 3% over sales for the first
quarter of 1993, despite the business disruptions caused by the
earthquake in National Sanitary's large Southern California
market. The operating margin of this segment improved slightly
from 2.0% during 1993 to 2.1% during 1994.
Sales and service revenues of the Roto-Rooter segment
for the first quarter of 1994 totaled $41,536,000, an increase of
51% over the $27,568,000 recorded for the first quarter of 1993.
Excluding the revenues of Encore Service Systems Inc. ("Encore"),
acquired jointly by the Company and Roto-Rooter in July 1993,
Roto-Rooter's total revenues for 1994 increased 16% versus
revenues for 1993. Revenues from plumbing repair and maintenance
services for 1994, which comprise approximately 21% of Roto-
Rooter's total revenues, increased by 29% when compared with
amounts recorded for 1993. Roto-Rooter's operating margin
declined from 10.0% during 1993 to 8.5% during 1994 primarily as
a result of the acquisition of Encore. The economies achieved as
Encore is integrated into the existing service contract business
should enable Encore to reach the margin achieved in Roto-
Rooter's other businesses. Partially offsetting the lower
margins of the Encore business was a favorable decline in
insurance costs as a percent of sales from 5.0% in the first
three months of 1993 to 3.1% in the first three months of 1994 as
a result of continuing improvements in Roto-Rooter's safety
record.
Sales of the Veratex segment, for the first three
months of 1994 increased by 2% over amounts recorded during the
first three months of 1993, reflecting the impact of severe
winter weather which made it impossible for a large number of
Veratex's customers to see their normal number of patients. The
Page 11 of 15
operating margin of this segment increased from 6.0% during 1993
to 6.8% during 1994. This increase was largely due to an
increase in the gross profit margin during the 1994 period as a
result of improved pricing and lower manufacturing costs.
Patient Care, acquired at the beginning of 1994,
contributed $15,107,000 and $496,000 to sales and operating
profit, respectively, during the first quarter of 1994. Compared
with its 1993 first quarter results, revenues of Patient Care
increased by 26% in 1994.
On a consolidated basis, Chemed's sales and service
revenues for the first quarter of 1994 increased 26% over amounts
recorded during the first quarter of 1993. Excluding the sales
of Encore and Patient Care, sales for 1994 increased by 6% over
amounts recorded during 1993. The total operating margin of
Chemed improved slightly from 4.6% during 1993 to 4.7% during
1994.
Income from operations increased from $3,892,000 during
the first quarter of 1993 to $5,670,000 during the first quarter
of 1994, primarily as a result of the acquisitions of Encore in
July 1993 and of Patient Care in January 1994.
Interest expense for the first quarter of 1994 totaled
$2,047,000 as compared with $2,273,000 during the first quarter
of 1993. This decline was primarily due to the maturity of the
Company's Series A Senior Notes in November 1993, which carried
an interest rate of approximately 10%. This debt has been
replaced with short-term and long-term borrowings carrying
interest rates of approximately 5%.
Other income for 1994 totaled $6,313,000 as compared
with $4,670,000 for the first quarter 1993. This increase was
attributable to larger gains on the sales of investments
($4,827,000 in 1994 versus $2,637,000 in 1993) partially offset
by lower interest income in 1994 (due primarily to lower interest
rates on cash equivalents and marketable securities).
During the first quarter of 1994 the Company's
effective income tax rate was 40.7% as compared with 31.2% during
the comparable period of 1993. The higher rate in 1994 was
attributable to: a) a lower domestic dividend deduction and
lower ESOP tax credit (as a percent of pretax income) in the 1994
quarter; b) a higher effective state and local tax rate for the
1994 period; c) a lower tax basis (versus book basis) on
investments sold in 1994; and, d) lower favorable tax adjustments
in the 1994 period versus those recorded in the first quarter of
1993.
Page 12 of 15
Chemed's share of the earnings of Omnicare, a 26%-owned
affiliate engaged in the pharmacy services business, increased by
30% from $479,000 in the first quarter of 1993 to $621,000 in the
first quarter of 1994. The increase in Omnicare's income is
largely attributable to continuing advances in its acquisition
program.
Chemed's income before cumulative effect of a change in
accounting principle increased from $4,078,000 ($.42 per share)
during the first quarter of 1993 to $5,677,000 ($.58 per share)
during the first quarter of 1994. Earnings for 1994 included an
aftertax gain of $2,688,000 ($.28 per share) from the sales of
investments during 1994. Similarly, during 1993 the Company
recognized an aftertax gain of $1,741,000 ($.18 per share) from
the sale of a portion of the Company's investment in EXEL Ltd.
Net income for 1994's first quarter totaled $5,677,000
($.58 per share) as compared with $5,729,000 ($.59 per share) for
the first quarter of 1993. Effective January 1, 1993, the
Company recorded an aftertax gain of $1,651,000 ($.17 per share)
from the adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
Page 13 of 15
PART II -- OTHER INFORMATION
----------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Exhibit SK 601 Page
No. Ref. No. Description No.
------- -------- ------------------ ----------
1 (11) Statement re:
Computation of Per
Share Earnings E-1
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 11, 1994 By Kevin J. McNamara
---------------------- -------------------------
Kevin J. McNamara, Executive
Vice President, Secretary,
and General Counsel
Dated: May 11, 1994 By Arthur V. Tucker
---------------------- -------------------------
Arthur V. Tucker
Vice President and
Controller (Principal
Accounting Officer)
Page 14 of 15
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF PER SHARE EARNINGS
(in thousands except per thousands) EXHIBIT 11
Income Before
Cumulative Effect
of a Change in
Accounting Principle Net Income
--------------------------------------
Three Months Ended Three Months Ended
March 31, March 31,
---------------------------------------
1994 1993 1994 1993
---------------------------------------
Computation of Earnings Per Common
and Common Equivalent Share (a):
- - ----------------------------------
Reported Income $ 5,677 $ 4,078 $ 5,677 $ 5,729
======= ======= ======= =======
Average number of shares used to
compute earnings per common share 9,824 9,766 9,824 9,766
Effect of unexercised stock options 59 37 59 37
------- ------- ------- -------
Average number of shares used to
compute earnings per common
and common equivalent share 9,883 9,803 9,883 9,803
======= ======= ======= =======
Earnings per common and
common equivalent share $ .57 $ .42 $ .57 $ .58
======= ======= ======= =======
Computation of Earnings Per
Common Share Assuming
Full Dilution (a):
- - ---------------------------
Reported Income $ 5,677 $ 4,078 $ 5,677 $ 5,729
======= ======= ======= =======
Average number of shares used to
compute earnings per common share 9,824 9,766 9,824 9,766
Effect of unexercised stock options 61 43 61 43
------- ------- ------- -------
Average number of shares used to
compute earnings per common share
assuming full dilution 9,885 9,809 9,885 9,809
======= ======= ======= =======
Earnings per common share
assuming full dilution $ .57 $ .42 $ .57 $ .58
======= ======= ======= =======
- - ------------------
(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 15 of 15
5
0000019584
CHEMED CORPORATION
1,000
3-MOS
DEC-31-1994
JAN-01-1994
MAR-31-1994
12,833
1,095
75,901
(2,512)
53,805
159,707
108,760
(35,331)
475,319
139,864
110,255
12,190
0
0
138,487
475,319
97,585
152,069
67,120
101,158
0
418
2,047
9,936
4,047
5,677
0
0
0
5,677
.58
.58
