- -------------------------------------------------------------------
- ------------------------------------------------------------------
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, 1998
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 10,100,363 Shares April 30, 1998
$1 Par Value
- ------------------------------------------------------------------
- ------------------------------------------------------------------
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, 1998 and
December 31, 1997 3
Consolidated Statement of Income -
Three months ended
March 31, 1998 and 1997 4
Consolidated Statement of Cash Flows -
Three months ended
March 31, 1998 and 1997 5
Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7 - 9
PART II. OTHER INFORMATION 10
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,
1998 1997
---------- ----------
ASSETS
Current assets
Cash and cash equivalents $ 72,820 $ 70,958
Accounts receivable, less allowances of $2,684
(1997 - $2,626) 41,961 42,142
Inventories
Raw materials 703 673
Finished goods and general merchandise 8,214 8,070
Statutory deposits 16,277 16,137
Current portion of redeemable preferred stock 27,172 27,136
Other current assets 12,639 12,352
---------- ----------
Total current assets 179,786 177,468
Other investments 40,563 40,124
Properties and equipment, at cost less accumulated
depreciation of $38,514 (1997 - $36,179) 54,488 53,089
Identifiable intangible assets less accumulated
amortization of $4,480 (1997 - $4,194) 13,359 13,645
Goodwill less accumulated amortization of $18,689
(1997 - $17,677) 143,357 143,003
Other assets 21,014 21,509
---------- ----------
Total Assets $ 452,567 $ 448,838
========== ==========
LIABILITIES
Current liabilities
Accounts payable $ 10,354 $ 8,774
Current portion of long-term debt 5,528 5,313
Income taxes 15,078 12,460
Deferred contract revenue 26,009 25,489
Other current liabilities 40,742 42,329
---------- ----------
Total current liabilities 97,711 94,365
Long-term debt 82,608 83,720
Other liabilities 41,878 42,633
---------- ----------
Total Liabilities 222,197 220,718
---------- ----------
STOCKHOLDERS' EQUITY
Capital stock-authorized 15,000,000 shares $1 par;
issued 13,128,810 shares (1997 - 13,019,722 shares) 13,129 13,020
Paid-in capital 162,410 158,485
Retained earnings 149,616 148,680
Treasury stock - 3,028,810 shares
(1997 - 2,942,205 shares), at cost (91,644) (88,063)
Unearned compensation (23,196) (23,959)
Accumulated other comprehensive income 20,055 19,957
---------- ----------
Total Stockholders' Equity 230,370 228,120
---------- ----------
Total Liabilities and Stockholders' Equity $ 452,567 $ 448,838
========== ==========
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,
-----------------------
1998 1997
--------- ---------
Continuing Operations
Service revenues and sales $ 88,412 $ 77,657
--------- ---------
Cost of services provided and cost of goods sold 55,876 48,023
Selling and marketing 7,127 6,035
General and administrative expenses 19,060 16,696
Depreciation 2,604 2,686
--------- ---------
Total costs and expenses 84,667 73,440
--------- ---------
Income from operations 3,745 4,217
Interest expense (1,758) (2,637)
Other income - net 8,333 10,392
--------- ---------
Income before income taxes 10,320 11,972
Income taxes (4,069) (4,595)
--------- ---------
Income from continuing operations 6,251 7,377
Discontinued Operations - 1,110
--------- ---------
Net Income $ 6,251 $ 8,487
========= =========
Earnings Per Common Share
Income from continuing operations $ .63 $ .74
========= =========
Net income .63 .85
========= =========
Average number of shares outstanding $ 9,989 $ 9,928
========= =========
Diluted Earnings Per Common Share
Income from continuing operations $ .62 $ .74
========= =========
Net income .62 .85
========= =========
Average number of shares outstanding 10,090 9,990
========= =========
Cash Dividends Paid Per Share $ .53 $ .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,
-----------------------
1998 1997
--------- ---------
Cash Flows From Operating Activities
Net income $ 6,251 $ 8,487
Adjustments to reconcile net income to net cash
provided by operating activities:
Gains on sale of investments (6,163) (9,079)
Depreciation and amortization 4,771 4,058
Provision for deferred income taxes 547 132
Discontinued operations - (1,110)
Changes in operating assets and liabilities,
excluding amounts acquired in business
combinations
Increase in accounts receivable (343) (2,133)
Increase in inventories and other current
assets (398) (710)
(Increase)/decrease in statutory deposits (140) 1,829
Increase/(decrease) in accounts payable, deferred
contract revenue and other current
liabilities 478 (1,349)
Increase in income taxes 3,368 4,126
Other - net (506) (1,139)
--------- ---------
Net cash provided by continuing operations 7,865 3,112
Net cash provided by discontinued operations - 3,865
--------- ---------
Net cash provided by operating activities 7,865 6,977
--------- ---------
Cash Flows From Investing Activities
Proceeds from sale of investments 6,798 10,474
Capital expenditures (4,363) (2,796)
Business combinations, net of cash acquired (1,811) (3,169)
Net cash outflow from the disposition of discontinued
operations (1,019) (661)
Purchase of investments (642) -
Investing activities of discontinued operations - (2,102)
Other - net 263 74
--------- ---------
Net cash provided/(used) by investing activities (774) 1,820
--------- ---------
Cash Flows From Financing Activities
Dividends paid (5,355) (5,217)
Proceeds from issuance of long-term debt - 25,000
Repayment of long-term debt - (23,061)
Other - net 126 721
--------- ---------
Net cash provided/(used) by financing activities (5,229) (2,557)
--------- ---------
Increase/(decrease) in cash and cash equivalents 1,862 6,240
Cash and cash equivalents at beginning of period 70,958 14,028
--------- ---------
Cash and cash equivalents at end of period $ 72,820 $20,268
========= =========
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, 1997.
2. Earnings per common share are computed using the weighted
average number of shares of capital stock outstanding.
Diluted earnings per common share reflect the dilutive impact
of outstanding stock options and nonvested stock awards.
3. The Company had total comprehensive income/(loss) of
$6,349,000 and $(1,895,000) for the three months ended
March 31, 1998 and 1997, respectively. The difference
between the Company's net income and comprehensive income
relates to the cumulative unrealized
appreciation/depreciation on its available-for-sale
securities.
Page 6 of 12
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Financial Condition
- -------------------
During the first quarter of 1998 there was no material
change in the Company's financial position.
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 impairment exits.
At March 31, 1998 Chemed had approximately $119.1
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.
Results of Operations
- ---------------------
Sales and service revenues and operating profit from
continuing operations by business segment follow (in thousands):
Three Months Ended
March 31,
-------------------
1998 1997
------- --------
Sales and Service
Revenues
- -----------------
Roto-Rooter $ 41,679 $ 35,879
Patient Care 29,800 25,933
Service America 16,933 15,845
-------- -------
Total $ 88,412 $ 77,657
======== ========
Page 7 of 12
Operating Profit
- ----------------
Roto-Rooter $ 3,893 $ 3,485
Patient Care 1,145 975
Service America 800 743
-------- --------
Total $ 5,838 $ 5,203
======== ========
Data relating to (a) the increase in service revenues and sales
and (b) operating profit as a percent of sales and service
revenues are set forth below:
Service Revenues Operating Profit
and Sales as a % of Sales
% Increase (Operating Margin)
---------------- ------------------
1998 vs. 1997 1998 1997
---------------- ------------------
Roto-Rooter 16 % 9.3% 9.7%
Patient Care 15 3.8 3.8
Service America 7 4.7 4.7
Total 14 6.6 6.7
Service revenues and sales for the Roto-Rooter segment
for the first quarter of 1998 totalled $41,679,000, an increase
of 16% over the $35,879,000 recorded in the first quarter of
1997. Revenues of the plumbing services business and the drain
cleaning business increased 21% and 9%, respectively, for the
first quarter of 1998, as compared with revenues recorded in the
first quarter of 1997. These revenues accounted for 39% and 43%,
respectively, of Roto-Rooter's total service revenues and sales
during the 1998 period. The operating margin of the Roto-Rooter
segment in the first quarter of 1998 was 9.3% as compared with
9.7% during the first quarter of 1997. This decline was
attributable to a lower gross profit margin in the 1998 first
quarter. The lower margin was attributable to a change in sales
mix in the 1998 period as revenues of the plumbing repair
business and heat, ventilating and air conditioning (HVAC)
business increased at greater rates than the sewer and drain
cleaning business, which carries a higher margin than the other
two businesses.
Service revenues of the Patient Care segment increased
15% from $25,933,000 during the first quarter of 1997 to
$29,800,000 in the first quarter of 1998. Excluding the revenues
of Priority Care, acquired in the second quarter of 1997,
revenues declined 2% in 1998 as compared with such revenues in
1997 primarily due to an expected decline in medicare and
medicaid revenues resulting from the passage of the Balanced
Budget Act of 1997. The operating margin of this segment was
3.8% in both 1997 and 1998.
Page 8 of 12
Service revenues and sales of the Service America
segment increased 7% from $15,845,000 in the first quarter of
1997 to $16,933,000 in the first quarter of 1998. This revenue
increase was driven by a 24% increase in the sales of Service
America's retail business, which accounts for approximately 20%
of its overall sales in the 1998 period. The operating margin of
the Service America segment was 4.7% in both 1997 and 1998.
Income from operations declined from $4,217,000 in the
first three months of 1997 as compared to $3,745,000 during the
first three months of 1998. This decline was largely the result
of operating costs of the Company's developing software
consulting operations and favorable accrual adjustments to
overhead expenses in the first quarter of 1997, partially offset
by higher operating profit of the Company's three segments.
Other income--net declined from $11,972,000 in the
first quarter of 1997 to $10,320,000 in the first quarter of
1998, primarily as a result of lower investment gains recorded in
the 1998 period. During the first quarter of 1998 the Company
recorded gains on the sales of investments aggregating $6,163,000
as compared with $9,079,000 during the first quarter of 1997.
Higher interest income for 1998 as compared with the 1997 first
quarter partially offset this decline in investment gains.
The Company's effective income tax rate during the
first quarter of 1998 was 39.4% as compared with 38.4% during the
first three months of 1997.
Income from continuing operations during the first
quarter of 1998 totalled $6,251,000 ($.63 per share) as compared
with $7,377,000 ($.74 per share) in the first quarter of 1997.
This decline was primarily attributable to larger gains on the
sales of investments in the 1997 period. Excluding gains on the
sales of investments in both periods, income from continuing
operations for the first quarter of 1998 totalled $.24 per share
as compared with $.18 per share during the first quarter of 1997.
Net income declined from $8,487,000 ($.85 per share) in
the 1997 first quarter to $6,251,000 ($.63 per share) in the 1998
first quarter, largely as a result of lower investment gains, and
income from discontinued operations of $1,110,000 recorded in the
first quarter of 1997, relating to operations which were disposed
in September 1997.
Page 9 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.
------- -------- ------------------ ----------
1 (11) Statement re:
Computation of Per
Share Earnings E-1 and E-2
2 (27) Financial Data
Schedule E-3 and E-4
(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, 1998 By Naomi C. Dallob
---------------------- -------------------------
Naomi C. Dallob, Vice
President and Secretary
Dated: May 12, 1998 By Arthur V. Tucker, Jr.
---------------------- -------------------------
Arthur V. Tucker, Jr.
Vice President and
Controller (Principal
Accounting Officer)
Page 10 of 12
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF PER SHARE EARNINGS
(in thousands except per share data)
EXHIBIT 11
Income from
Continuing Operations
---------------------
Three Months Ended
March 31,
---------------------
1998 1997
---------------------
Computation of Earnings Per Common Share
- ----------------------------------------
Reported Income $ 6,251 $ 7,377
======= =======
Average number of shares outstanding 9,989 9,928
======= =======
Earnings share $ .63 $ .74
======= =======
Computation of Diluted Earnings Per Common Share
- ------------------------------------------------
Reported Income $ 6,251 $ 7,377
======= =======
Average number of shares outstanding 9,989 9,928
Effect of nonvested stock awards 44 23
Effect of unexercised stock options 57 39
------- -------
Average number of shares used to compute
diluted earnings per common share 10,090 9,990
======= =======
Earnings per common share
assuming full dilution $ .62 $ .74
======= =======
E - 1
Page 11 of 12
CHEMED CORPORATION AND SUBSIDIARY COMPANIES
COMPUTATION OF PER SHARE EARNINGS
(in thousands except per share data)
EXHIBIT 11 (continued)
Net Income
---------------------
Three Months Ended
March 31,
---------------------
1998 1997
---------------------
Computation of Earnings Per Common Share
- ----------------------------------------
Reported Income $ 6,251 $ 8,487
======= =======
Average number of shares outstanding 9,989 9,928
======= =======
Earnings per common share $ .63 $ .85
======= =======
Computation of Diluted Earnings Per Common Share
- ------------------------------------------------
Reported Income $ 6,251 $ 8,487
Impact of subsidiary stock options - (5)
------- -------
Adjusted income $ 6,251 $ 8,482
======= =======
Average number of shares outstanding 9,989 9,928
Effect of nonvested stock awards 44 23
Effect of unexercised stock options 57 39
------- -------
Average number of shares
used to compute diluted
earnings per common share 10,090 9,990
======= =======
Earnings per common share
assuming full dilution $ .62 $ .85
======= =======
E - 1
Page 12 of 12
5
0000019584
CHEMED CORPORATION
1,000
3-MOS
DEC-31-1998
JAN-01-1998
MAR-31-1998
72,820
0
77,645
(2,684)
8,917
179,786
93,002
(38,514)
452,567
97,711
82,608
0
0
13,129
217,214
452,567
0
88,412
0
55,876
0
276
(1,758)
10,320
4,069
6,251
0
0
0
6,251
.63
.62
