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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 June 30, 1996
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 9,811,918 Shares July 31, 1996
$1 Par Value
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Page 1 of 13
2
CHEMED CORPORATION AND
SUBSIDIARY COMPANIES
Index
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheet -
June 30, 1996 and
December 31, 1995 3
Consolidated Statement of Income -
Three months and six months ended
June 30, 1996 and 1995 4
Consolidated Statement of Cash Flows
Six months ended
June 30, 1996 and 1995 5
Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7 - 11
PART II. OTHER INFORMATION 12 - 13
Page 2 of 13
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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
June 30, December 31,
1996 1995
--------- ------------
ASSETS
Current assets
Cash and cash equivalents $ 32,255 $ 19,187
Marketable securities -- 10,094
Accounts receivable, less allowances of $3,083 (1995 - $3,519) 87,358 87,177
Inventories
Raw materials 8,718 7,921
Finished goods and general merchandise 46,508 50,330
Statutory deposits 19,505 18,943
Other current assets 20,583 25,785
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Total current assets 214,927 219,437
Other investments 78,673 90,176
Properties and equipment, at cost less accumulated depreciation
depreciation of $51,796 (1995 - $47,074) 79,899 77,131
Identifiable intangible assets less accumulated amortization
of $3,424 (1995 - $2,886) 17,686 18,140
Goodwill less accumulated amortization of $22,844 (1995 - $20,978) 119,121 119,486
Other assets 9,602 7,498
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Total Assets $ 519,908 $ 531,868
========= =========
LIABILITIES
Current liabilities
Accounts payable $ 27,825 $ 28,411
Bank notes and loans payable 25,000 25,000
Current portion of long-term debt 7,500 7,089
Income taxes 8,840 11,965
Deferred contract revenue 25,043 23,512
Other current liabilities 45,142 49,027
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Total current liabilities 139,350 145,004
Deferred income taxes 11,354 15,819
Long-term debt 81,969 85,368
Other liabilities and deferred income 32,314 36,030
Minority interest 43,668 40,990
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Total Liabilities 308,655 323,211
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STOCKHOLDERS' EQUITY
Capital stock-authorized 15,000,000 shares $1 par;
issued 12,680,927 (1995 - 12,598,418) shares 12,681 12,598
Paid-in capital 147,982 145,290
Retained earnings 134,896 127,141
Treasury stock - 2,869,009 (1995 - 2,784,192) shares, at cost (84,551) (79,996)
Unearned compensation - ESOPs (30,473) (33,355)
Unrealized appreciation on investments 30,718 36,979
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Total Stockholders' Equity 211,253 208,657
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Total Liabilities and Stockholders' Equity $ 519,908 $ 531,868
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See accompanying notes to unaudited financial statements.
Page 3 of 13
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CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
UNAUDITED
(in thousands except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Continuing Operations
Sales $ 99,879 $ 116,860 $ 199,642 $ 225,458
Service revenues 70,592 60,484 138,290 121,744
--------- --------- --------- ---------
Total sales and service revenues 170,471 177,344 337,932 347,202
--------- --------- --------- ---------
Cost of goods sold 68,113 80,836 136,703 155,443
Cost of services provided 42,263 37,206 83,376 75,365
Selling and marketing expenses 24,639 26,084 48,897 51,544
General and administrative expenses 24,397 22,408 47,913 44,479
Depreciation 3,029 2,959 6,002 5,824
--------- --------- --------- ---------
Total costs and expenses 162,441 169,493 322,891 332,655
--------- --------- --------- ---------
Income from operations 8,030 7,851 15,041 14,547
Interest expense (1,900) (2,119) (3,831) (4,222)
Other income, net 5,181 4,727 21,479 10,376
--------- --------- --------- ---------
Income before income taxes and
minority interest 11,311 10,459 32,689 20,701
Income taxes (4,237) (4,027) (12,211) (7,841)
Minority interest in earnings of
subsidiaries (1,386) (1,127) (2,593) (2,170)
--------- --------- --------- ---------
Income from continuing operations 5,688 5,305 17,885 10,690
Discontinued Operations -- -- -- 901
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Net Income $ 5,688 $ 5,305 $ 17,885 $ 11,591
========= ========= ========= =========
Earnings Per Common Share
Income from continuing operations $ .58 $ .54 $ 1.82 $ 1.08
========= ========= ========= =========
Net income $ .58 $ .54 $ 1.82 $ 1.17
========= ========= ========= =========
Average Number of Shares Outstanding 9,837 9,869 9,852 9,866
========= ========= ========= =========
Cash Dividends Paid Per Share $ .52 $ .51 $ 1.04 $ 1.02
========= ========= ========= =========
See accompanying notes to unaudited financial statements.
Page 4 of 13
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CHEMED CORPORATION AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
UNAUDITED
(in thousands)
Six Months Ended
June 30,
---------------------
1996 1995
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Cash Flows From Operating Activities
Net income $ 17,885 $ 11,591
Adjustments to reconcile net income to net cash
provided by operating activities:
Gains on sale of investments (17,431) (6,630)
Depreciation and amortization 9,404 8,855
Minority interest in earnings of subsidiaries 2,593 2,170
Provision for deferred income taxes (2,310) (980)
Provision for uncollectible accounts receivable 712 910
Discontinued operations -- (901)
Changes in operating assets and liabilities,
excluding amounts acquired in business combinations
Increase in accounts receivable (635) (4,115)
(Increase)/decrease in inventories and other
current assets 2,276 (4,516)
Increase in statutory deposits (562) (1,476)
Increase/(decrease) in accounts payable,
deferred contract revenue and other
current liabilities (2,193) 3,187
Increase/(decrease) in income taxes 1,930 (2,071)
Other - net (2,690) (971)
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Net cash provided by operating activities 8,979 5,053
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Cash Flows From Investing Activities
Proceeds from sale of investments 30,349 13,982
Capital expenditures (9,118) (6,131)
Business combinations, net of cash acquired (3,532) (8,553)
Net proceeds from sale of discontinued operations (1,065) 3,566
Purchase of investments -- (1,700)
Other - net 162 (181)
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Net cash provided by investing activities 16,796 983
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Cash Flows From Financing Activities
Dividends paid (10,253) (10,066)
Purchase of treasury stock (2,657) (545)
Other - net 203 68
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Net cash used by financing activities (12,707) (10,543)
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Increase/(Decrease) In Cash And Cash Equivalents 13,068 (4,507)
Cash and cash equivalents at beginning of period 19,187 4,722
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Cash and cash equivalents at end of period $ 32,255 $ 215
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See accompanying notes to unaudited financial statements.
Page 5 of 13
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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, 1995.
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. Following the resolution of various issues pertaining to the Company's
accruals for income taxes relative to the sale of DuBois Chemicals Inc.
("DuBois") in 1991, the Company recorded an adjustment of $1,365,000
($901,000 net of federal income taxes) to its state and local income tax
provision in the first quarter of 1995. This adjustment is classified as
"discontinued operations" in the statement of income.
4. During the first six months of 1996, the Company sold portions of its
investments in Omnicare Inc. ("Omnicare") and Exel Ltd. ("Exel"), realizing
pretax gains of $14,208,000 and $3,223,000, respectively. Similarly, during
the comparable period of 1995, the Company realized pretax gains of
$4,537,000 and $2,028,000, respectively, from the sales of portions of
investments in Omnicare and Exel.
5. In June 1996, Apria Healthcare Group, Inc. ("Apria") announced its plan to
merge with Vitas Healthcare Corporation ("Vitas"), the hospice provider in
which Chemed has maintained an investment since 1991. As a result of the
merger, which is subject to regulatory approval and which is expected to
take place before the end of 1996, Chemed will receive cash of $27,000,000,
representing redemption of its Vitas preferred stock. In addition, Chemed
will receive stock in publicly traded Apria, representing a significant
capital gain on the Vitas warrants Chemed presently holds.
Page 6 of 13
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Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
Financial Condition
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The decline in other investments from $90.2 million at December 31,
1995 to $78.7 million at June 30, 1996 is primarily attributable to the sale of
portions of the Company's investments in Exel and Omnicare in 1996.
At June 30, 1996 Chemed had approximately $82.3 million of unused lines
of credit with various banks. Based on the Company's current financial position
and its available credit lines, management believes its sources of capital and
liquidity are satisfactory for the Company's needs in the foreseeable future.
Results of Operations
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Sales and service revenues and operating profit from continuing
operations by business segment follow (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
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1996 1995 1996 1995
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Sales and Service
Revenues
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National Sanitary Supply $ 77,210 $ 85,571 $154,487 $166,364
Roto-Rooter 50,038 43,271 97,821 86,998
Omnia 18,270 25,843 36,781 50,701
Patient Care 24,953 22,659 48,843 43,139
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Total $170,471 $177,344 $337,932 $347,202
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Operating Profit
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National Sanitary Supply $ 2,578 $ 2,876 $ 4,462 $ 4,859
Roto-Rooter 4,589 3,720 8,788 7,594
Omnia 889 1,454 2,382 2,905
Patient Care 1,497 1,202 2,570 2,058
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Total $ 9,553 $ 9,252 $ 18,202 $ 17,416
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Data relating to (a) increase or decrease in sales and service revenues
and (b) operating profit as a percent of sales and service revenues for each
segment are set forth on the following page:
Page 7 of 13
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Sales and Service Operating Profit
Revenues % as a % of Sales
Increase/(Decrease) (Operating Profit)
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1996 vs. 1995 1996 1995
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Three Months Ended
June 30,
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National Sanitary Supply (10)% 3.3% 3.4%
Roto-Rooter 16 9.2 8.6
Omnia (29) 4.9 5.6
Patient Care 10 6.0 5.3
Total (4) 5.6 5.2
Six Months Ended
June 30,
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National Sanitary Supply (7)% 2.9% 2.9%
Roto-Rooter 12 9.0 8.7
Omnia (27) 6.5 5.7
Patient Care 13 5.3 4.8
Total (3) 5.4 5.0
Second Quarter 1996 versus Second Quarter 1995
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Sales of the National Sanitary Supply segment for the second quarter of
1996 totalled $77,210,000, a decline of 10% versus sales recorded during the
second quarter of 1995. This anticipated decline was primarily due to the loss
of a large fast-food customer during the first quarter of 1996. The operating
margin declined slightly from 3.4% during the second quarter of 1995 to 3.3%
during the second quarter of 1996.
Sales and service revenues of the Roto-Rooter segment for the second
quarter of 1996 totalled $50,038,000, an increase of 16% over the revenues
recorded for the second quarter of 1995. For the second quarter of 1996,
plumbing revenues, which account for approximately one-fourth of total revenues,
and sewer and drain cleaning revenues, which account for approximately one-third
of total revenues, increased 26% and 15%, respectively, over amounts recorded in
the comparable quarter of 1995. Much of this revenue growth is attributable to
Roto-Rooter's emphasis on expanding the size and skill level of its technician
workforce, which on a year-to-date basis has increased 17% as compared with the
number of technicians employed in the second quarter of 1995. In addition,
revenues of Roto-Rooter's service contract business for the second quarter of
1996, which account for approximately 30% of total revenues, increased 8% over
revenues recorded in the second quarter of 1995. The operating margin of this
segment increased from 8.6% during the second quarter of 1995 to 9.2% during the
second quarter of 1996 as a result of effective cost management and double-digit
sales growth.
Page 8 of 13
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As anticipated, sales of the Omnia segment declined 29% to $18,270,000
during the second quarter of 1996, primarily due to the July 1995 sale of the
retail division of this segment. The operating margin of Omnia declined from
5.6% during the second quarter of 1995 to 4.9% during the second quarter of
1996, largely as a result of the unprecedented rapid decline in pulp paper
prices and the resulting competitive environment in the disposable medical and
dental products field. Omnia continues to seek acquisitions that will broaden
its product lines and restore the overall level of the group's sales and
earnings.
Service revenues of the Patient Care segment increase 10% from
$22,659,000 in the second quarter of 1995 to $24,953,000 in the second quarter
of 1996. This revenue growth is broad-based throughout Patient Care's service
market and is driven by emphasis on personal care services. As a result of
significant revenue growth Patient Care continued to leverage its fixed costs
and increase its operating margin from 5.3% during the second quarter of 1995 to
6.0% during the second quarter of 1996.
Income from operations increased from $7,851,000 during the second
quarter of 1995 to $8,030,000 during the second quarter of 1996, primarily as a
result of increases in operating profit recorded by Roto-Rooter and Patient
Care, partially offset by declines in operating profit recorded by National
Sanitary Supply and Omnia.
Other income for the second quarter of 1996 totalled $5,181,000 as
compared with $4,727,000 during the second quarter of 1995. This increase was
attributable to larger gains on the sales of investments in the 1996 quarter
versus such gains recorded in the 1995 quarter.
During the second quarter of 1996 the Company's effective income tax
rate was 37.5% as compared with 38.5% during the comparable period of 1995. The
lower rate in 1996 was attributable primarily to an increase in favorable income
tax adjustments during the period.
Chemed's income from continuing operations increased from $5,305,000
($.54 per share) during the second quarter of 1995 to $5,688,000 ($.58 per
share) during the second quarter of 1996. Earnings for 1996 and 1995 included
aftertax gains aggregating $1,995,000 ($.20 per share) and $1,858,000 ($.19 per
share), respectively, from the sales of investments.
Page 9 of 13
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Six Months Ended June 30, 1996 Versus June 30, 1995
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The National Sanitary Supply segment recorded sales of $154,487,000
during the first six months of 1996, a decline of 7% versus sales recorded
during the comparable period of 1995. This decline was attributable to the
previously-mentioned loss of a large fast-food customer during the first quarter
of 1996. National Sanitary's operating margin was 2.9% during the first six
months of 1996 and 1995.
Sales and service revenues of the Roto-Rooter segment for the first six
months of 1996 increased 12% as compared with amounts recorded during the first
six months of 1995. This sales growth was attributable to revenue increases of
12% and 24%, respectively, in Roto-Rooter's sewer and drain cleaning and
plumbing repair businesses for the 1996 period. As a result of effective cost
management and double-digit sales growth, this segment's operating margin
increased from 8.7% during the first six months of 1995 to 9.0% during the first
six months of 1996.
The Omnia segment recorded sales of $36,781,000, a decline of 27%
versus sales recorded during the first six months of 1995. This decline was
attributable to the July 1995 sale of the retail division of this segment.
During the first six months of 1996 the operating margin of Omnia Inc. was 6.5%
as compared with 5.7% during the first six months of 1995. This increase was
attributable to a higher gross profit margin of the core wholesale business
during the first quarter of 1996 as compared with the margin for the first
quarter of 1995.
The Patient Care segment recorded service revenues of $58,843,000
during the first six months of 1996, an increase of 13% over revenues recorded
in the first six months of 1995. As a result, the operating profit margin of
this segment improved from 4.8% during the first six months of 1995 to 5.3%
during the first six months of 1996.
Income from operations increased from $14,547,000 during the first six
months of 1995 to $15,041,000 during the comparable period of 1996. This
increase was attributable to increases in the operating profit reported by
Roto-Rooter and Patient Care, offset by declines recorded by National Sanitary
Supply and Omnia.
Other income for the first six months of 1996 totalled $21,479,000 as
compared with $10,376,000 for the first six months of 1995. This increase was
primarily attributable to larger gains on the sales of investments during the
1996 period versus such gains recorded in 1995.
Page 10 of 13
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For the first six months of 1996 the Company's effective income tax
rate was 37.4% as compared with 37.9% during the comparable period of 1995. This
decline was attributable to larger favorable tax adjustments during the 1996
period as compared with such adjustments during the first six months of 1995.
Chemed's income from continuing operations increased from $10,690,000
($1.08 per share) during the first six months of 1995 to $17,885,000 ($1.82 per
share) during the first six months of 1996. Earnings for the six-month periods
included aftertax gains from sales of investments of $10,919,000, ($1.11 per
share) and $4,321,000 ($.43 per share) in 1996 and 1995, respectively.
Net income for the first six months of 1995 totalled $11,591,000 ($1.11
per share) and included favorable aftertax adjustments related to operations
discontinued in 1991 amounting to $901,000 ($.09 per share).
Page 11 of 13
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PART II -- OTHER INFORMATION
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Item 4. Submission of Matters to a Vote of Security Holders
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(a) Chemed held its Annual Meeting of Shareholders on May 20, 1996.
(b) The names of each director elected at this Annual Meeting are as follows:
Edward L. Hutton James A. Cunningham
James H. Devlin Charles H. Erhart, Jr.
Joel F. Gemunder Patrick P. Grace
Thomas C. Hutton William R. Griffin
Sandra E. Laney W. L. Krebs
John M. Mount Kevin J. McNamara
D. Walter Robbins, Jr. Timothy S. O'Toole
G. J. Walsh III Paul C. Voet
(c) The stockholders then ratified the Board of Directors' selection of Price
Waterhouse LLP as independent accountants for the Company and its
consolidated subsidiaries for the year 1996: 8,657,115 votes were cast in
favor of the proposal, 53,343 votes were cast against it, 202,849 votes
abstained, and zero were broker non-votes.
With respect to the election of directors, the number of votes cast for
each nominee was as follows:
Votes Votes
Votes For Against Withheld
--------- ------- --------
E.L. Hutton 8,749,754 163,553 49,404
J.A. Cunningham 8,757,150 156,157 42,008
J.H. Devlin 8,766,975 146,332 32,183
C.H. Erhart, Jr. 8,766,145 147,162 33,013
J.F. Gemunder 8,756,849 156,458 42,309
P.P. Grace 8,730,578 182,729 65,580
W.R. Griffin 8,753,281 160,026 45,877
T.C. Hutton 8,757,279 156,028 41,879
W.C. Krebs 8,750,430 162,877 48,728
S.E. Laney 8,753,222 160,026 45,936
K.J. McNamara 8,767,950 145,357 31,208
J.M. Mount 8,747,150 166,157 52,008
T.S. O'Toole 8,769,039 144,268 30,119
D.W. Robbins, Jr. 8,751,883 161,424 47,275
P.C. Voet 8,762,408 150,899 36,750
G.W. Walsh III 8,775,113 138,194 24,045
Page 12 of 13
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Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
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Exhibit SK 601
No. Ref. No. Description
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1 (10) Amended and Restated
Credit Agreement dated
as of June 20, 1996
2 (11) Statement re:
Computation of Per
Share Earnings
3 (27) Financial Data
Schedule
(b) Reports on Form 8-K.
--------------------
A report on Form 8-K was filed dated August 8, 1996 reporting the
Company's announcement that it intends to commence a tender offer to acquire
any and all of the outstanding shares of common stock of Roto-Rooter, Inc. (a
58%-owned subsidiary of the Company) currently not held by the Company
(approximately 2,160,000 shares), for a cash price of $41.00 per share. The
report on Form 8-K included the text of the Company's press release
dated August 8, 1996.
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: August 12, 1996 By Kevin J. McNamara
---------------------- -------------------------
Kevin J. McNamara
President
Dated: August 12, 1996 By Arthur V. Tucker, Jr.
---------------------- -------------------------
Arthur V. Tucker, Jr.
Vice President and
Controller (Principal
Accounting Officer)
Page 13 of 13