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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: September 30, 1995
Commission File Number: 0-13821
ROTO-ROOTER, INC.
(Exact name of registrant as specified in its charter)
Delaware 31-1078130
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
2500 Chemed Center, 255 E. Fifth Street, Cincinnati, Ohio 45202
(Address of principal executive offices) (Zip code)
(513) 762-6690
(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
Common Stock 5,126,710 Shares October 31, 1995
$1 Par Value
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Page 1 of 13
ROTO-ROOTER, INC. AND
SUBSIDIARY COMPANIES
Index
Page No.
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheet -
September 30, 1995 and
December 31, 1994 3
Consolidated Statement of Income -
Three and Nine Months Ended
September 30, 1995 and 1994 4
Consolidated Statement of Cash Flows -
Nine Months Ended
September 30, 1995 and 1994 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
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Exhibit 11. Computation of Per
Share Earnings E-1
Exhibit 27. Financial Data Schedule E-2
Page 2 of 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ROTO-ROOTER, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands except share and per share data)
UNAUDITED
September 30, December 31,
1995 1994*
------------- ------------
ASSETS
Current Assets:
Cash and Cash Equivalents $ 2,333 $ 937
Demand Deposits with Chemed Corporation 10,381 9,037
Accounts Receivable, Less Allowance
(1995--$981; 1994--$884) 7,213 6,593
Inventories --
Raw Materials, Supplies, General Merchandise
and In Process 6,502 6,382
Finished Goods 1,198 781
Deferred Income Taxes 3,076 2,956
Statutory Deposits 18,887 14,408
Prepaid Expenses and Other Current Assets 2,736 2,597
---------- ----------
Total Current Assets 52,326 43,691
Property and Equipment, at Cost, Less Accumulated
Depreciation (1995--$17,352; 1994--$14,638) 24,784 25,213
Intangible Assets, Less Accumulated Amortization
(1995--$12,286; 1994--$10,371) 65,192 65,204
Other Assets 4,300 3,275
---------- ----------
Total Assets $ 146,602 $ 137,383
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 7,066 $ 6,513
Deferred Contract Revenue 23,519 22,631
Income Taxes 1,024 739
Other Current Liabilities 22,056 17,082
---------- ----------
Total Current Liabilities 53,665 46,965
Deferred Income Taxes 2,894 2,234
Deferred Compensation and Other Noncurrent
Liabilities 4,948 8,046
Long-Term Debt with Chemed Corporation 8,424 8,424
Minority Interest 4,042 3,967
---------- ----------
Total Liabilities 73,973 69,636
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred Stock - Authorized 1,000,000 Shares,
$1.00 Par Value (None Issued) -- --
Common Stock - Authorized 10,000,000 Shares,
$1.00 Par Value (Issued 1995--5,388,547 Shares
and 1994--5,276,404 Shares) 5,389 5,276
Paid-In Capital 26,817 24,290
Retained Earnings 47,279 42,918
Treasury Stock, at Cost (1995--267,083 Shares and
1994--205,084 Shares) (6,856) (4,737)
---------- ----------
Total Stockholders' Equity 72,629 67,747
---------- ----------
Total Liabilities and Stockholders' Equity $ 146,602 $ 137,383
========== ==========
*Reclassified to conform to current year presentation.
See accompanying notes to unaudited financial statements.
Page 3 of 13
ROTO-ROOTER, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share data)
UNAUDITED
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------
1995 1994* 1995 1994*
-------- -------- -------- --------
Total Operating Revenues $ 45,280 $ 43,057 $132,278 $126,493
-------- -------- -------- --------
Cost of Services Provided and
Products Sold 27,419 26,371 80,413 78,643
Selling, General and Administrative
Expenses 11,815 10,670 34,425 31,194
Nonrecurring Expenses (Note 3) 538 -- 538 --
Depreciation and Amortization 1,906 1,817 5,706 5,454
-------- -------- -------- --------
Total Costs and Expenses 41,678 38,858 121,082 115,291
-------- -------- -------- --------
Income from Operations 3,602 4,199 11,196 11,202
Interest Expense (246) (220) (734) (543)
Other Income - Net 627 185 1,534 384
-------- -------- -------- --------
Income before Income Taxes 3,983 4,164 11,996 11,043
Income Taxes 1,710 1,790 5,165 4,807
-------- -------- -------- --------
Income before Minority Interest 2,273 2,374 6,831 6,236
Minority Interest (7) 45 75 152
-------- -------- -------- --------
Net Income $ 2,280 $ 2,329 $ 6,756 $ 6,084
======== ======== ======== ========
Earnings Per Common Share $ .45 $ .46 $ 1.33 $ 1.20
======== ======== ======== ========
Average Number of Shares
Outstanding 5,106 5,069 5,092 5,064
======== ======== ======== ========
Cash Dividends Paid Per Share $ .17 $ .15 $ .47 $ .43
======== ======== ======== ========
*Reclassified to conform to current year presentation.
See accompanying notes to unaudited financial statements.
Page 4 of 13
ROTO-ROOTER, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
UNAUDITED
Nine Months Ended
September 30,
---------------------
1995 1994
-------- --------
Cash Flows From Operating Activities:
Net Income $ 6,756 $ 6,084
Depreciation and Amortization 5,706 5,454
Provision for Deferred Income Taxes (240) 274
Changes in Operating Assets and
Liabilities 1,828 (2,650)
Change in Statutory Reserve Requirements (4,479) 583
Other (943) (714)
-------- --------
Net Cash Provided by Operating
Activities 8,628 9,031
-------- --------
Cash Flows from Investing Activities:
Capital Expenditures (3,845) (5,470)
Business Combinations (853) (119)
Proceeds from Disposition of Property
and Equipment 772 650
-------- --------
Net Cash Used for Investing
Activities (3,926) (4,939)
-------- --------
Cash Flows from Financing Activities:
Dividends Paid (2,395) (2,179)
Advances To Chemed Corporation (1,344) (505)
All Other 433 589
-------- --------
Net Cash Used for
Financing Activities (3,306) (2,095)
-------- --------
Net Increase in Cash and Cash Equivalents 1,396 1,997
Cash and Cash Equivalents at Beginning
of Period 937 5,754
-------- --------
Cash and Cash Equivalents at End of Period $ 2,333 $ 7,751
======== ========
See accompanying notes to unaudited financial statements.
Page 5 of 13
ROTO-ROOTER, INC. AND SUBSIDIARY COMPANIES
Notes to Unaudited Financial Statements
1. The accompanying unaudited consolidated financial statements
have been prepared in accor dance 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 Roto-Rooter, Inc., the
financial statements presented herein contain all adjustments (consisting
of only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows of the company
and its consolidated subsidiaries. For further information regarding
Roto-Rooter's accounting policies and other financial information, refer
to the consolidated financial statements and footnotes included in
Roto-Rooter's Annual Report on Form 10-K for the year ended
December 31, 1994.
2. Earnings per common share are computed using the weighted average number
of shares of common stock outstanding during the respective periods and
exclude the dilutive effect of outstanding stock options as it is not
material.
3. Nonrecurring Expenses--In August 1995, Chemed Corporation ("Chemed")
terminated discussions with a Special Committee of the Board of Directors
regarding the possible acquisition by Chemed of the 42% minority interest
in the Common Stock of Roto-Rooter not held by Chemed. The Special
Committee rejected Chemed's final offer in which each outstanding share
of Common Stock of Roto-Rooter would have been exchanged for 1.05 shares
of Chemed Common Stock.
In connection with the termination of the above activities, a
one-time pretax charge to earnings of $538,000 was recorded and is shown
as "nonrecurring expenses." This charge includes legal, investment banking
and Special Committee fees and expenses related to these activities. The
charge results in a decrease in net income of $355,000 ($.07 per share)
for the quarter and year-to-date periods ending September 30, 1995.
Page 6 of 13
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
FINANCIAL CONDITION
The only material changes in financial condition from
December 31, 1994 to September 30, 1995 were an increase in
statutory deposits, as required by the Florida Department of
Insurance, from $14,408,000 at December 31, 1994, to $18,887,000
and the reclassification of the sales-based contingent payment
that will become payable in the third quarter of 1996 from Other
Noncurrent Liabilities to Other Current Liabilities ($3,620,000).
RESULTS OF OPERATIONS
Third Quarter 1995 Versus Third Quarter 1994
----------------------------------------------
Total operating revenues for the third quarter of 1995
totalled $45,280,000, an increase of 5% over the $43,057,000 of
revenues recorded in the third quarter of 1994. For the third
quarter of 1995, sewer and drain cleaning revenues which
accounted for 32% of third quarter total revenues, and plumbing
revenues, which accounted for approximately 25% of total
revenues, increased 9% and 20%, respectively over amounts
recorded in the comparable quarter of 1994. Revenues from the
company's service contract business (Service America) for the
third quarter of 1995 which accounted for approximately 32% of
Roto-Rooter's total revenues, declined 8% as compared with
revenues recorded in the third quarter of 1994. This decrease
was attributable to the sale of Service America's Maintenance and
Management subsidiary effective March 31, 1995. The sale of this
business permits management to focus on the core appliance and
air conditioning repair and maintenance business. Excluding the
Maintenance and Management sales figures from the quarterly
comparisons would have resulted in the service contract business
reporting revenues 2% above the comparable revenues in the third
quarter of 1994, and Roto-Rooter, Inc. consolidated reporting
revenues that would have been 9% above the comparable revenues in
1994.
The company's operating profit margin declined from 9.8% of
sales in the third quarter of 1994 to 8.0% of sales in the third
quarter of 1995 for two reasons. First, as provided in Note 3 to
these unaudited financial statements, during the third quarter of
1995, Roto-Rooter incurred nonrecurring expenses of $538,000
relating to the Special Committee's evaluation of Chemed's offer
Page 7 of 13
to acquire those shares not already owned by Chemed. These
nonrecurring expenses accounted for 1.1 percentage points of the
margin decline. The balance of the margin decline resulted from
a decline in profit margin in the service contract business,
which experienced a higher-than-expected increase in the number
of service calls in the third quarter of 1995. The company is
reviewing internal practices, as well as pricing, to minimize any
future impact of higher service calls per contract.
Other Income--Net increased from $185,000 in the third
quarter of 1994 to $627,000 in the third quarter of 1995
primarily as a result of earning higher levels of interest income
on its interest-earning deposits as compared to the third quarter
of 1994. The company's interest-earning deposits increased from
$21,697,000 at September 30, 1994 to $31,601,000 at September 30,
1995, an increase of $9,904,000 or 46% above the comparable prior
year ending deposits. It has been one of Roto-Rooter's goals for
1995 to build its cash reserves by generating excellent cash
flows from operations. The company has been successful through
the first nine months of 1995 in accomplishing this objective.
As a result of the higher levels of non-operating earnings,
Roto-Rooter's pretax margin, excluding the unusual expenses,
increased from 9.7% in the third quarter of 1994 to 10% in the
third quarter of 1995.
The company's effective income tax rate for the third quarter
of 1995 was 42.9%, which was comparable to the 43.0% reported for
the third quarter of 1994.
Net income for the third quarter of 1995 was $2,280,000,
which compares with net income of $2,329,000 reported in the
comparable 1994 quarter. Excluding the nonrecurring expenses
would have resulted in earnings for the quarter ended September
30, 1995 being $2,635,000, a 13% increase over comparable
earnings for the third quarter of 1994. Earnings per share for
the third quarter of 1995 were 45 cents, which compared with
earnings per share for the third quarter of 1994 of 46 cents.
Earnings per share for the 1995 third quarter, excluding the
unusual expenses, would have been 52 cents, or 13% above 1994's
earnings per share of 46 cents.
First Nine Months of 1995 versus First Nine Months of 1994
--------------------------------------------------------
For the nine months ended September 30, 1995, total operating
revenues increased to $132,278,000, or 5% above the $126,493,000
reported in the first nine months of last year. Excluding the
sales of the Maintenance and Management business which was sold
in March 1995, total Roto-Rooter, Inc. sales would have been 8%
above the prior year period. Contributing to the sales growth in
Page 8 of 13
the first nine months of 1995 was higher sewer and drain and
plumbing sales. Sewer and drain cleaning sales for the first
nine months of 1995 reached $42,576,000 or 11% above the
comparable revenues in 1994. Plumbing revenues increased to
$31,536,000 for the first nine months of 1995, which was 16%
above the comparable revenues of the prior year period.
Income from operations for the first nine months of 1995 was
$11,196,000 which compares with $11,202,000 for the first nine
months of 1994. Excluding the unusual expenses referred to in
Note 3 to these financial statements, operating profit would have
been $11,734,000 or 4% above the operating profit reported for
the first nine months of 1994. Excluding the unusual expenses,
the operating profit margin for the first nine months of 1995 and
1994 would have been equal at 8.9% of sales.
As mentioned previously, one of the company's goals for 1995
has been to build its cash reserves by generating additional cash
flows from operations. The company began this task following the
acquisition of Encore Service Systems, Inc. in July 1993 and has
continued building its interest-earning cash reserves throughout
1994 and 1995. Other Income--Net increased to $1,534,000 in the
nine months ended September 30, 1995, which compares with
$384,000 in the nine months ended September 30, 1994, primarily
as a result of increases in the company's interest-earning cash
reserves. Excluding the nonrecurring expenses, the company's
pretax profit margin increased from 8.7% of sales in the first
nine months of 1994 to 9.5% of sales for the first nine months of
1995. The increase in the pretax margin was a direct result of
the company earning higher levels of interest income on its
growing cash reserves.
Net income for the first nine months of 1995 was $6,756,000,
an 11% increase over the $6,084,000 reported in the comparable
1994 period. Excluding the nonrecurring expenses, earnings for
the first nine months of 1995 would have been $7,111,000 or 17%
above earnings in the first nine months of 1994. Earnings per
share for the nine months ended September 30, 1995 were $1.33, or
11% above the prior year's first nine months earnings per share
of $1.20. Excluding the unusual expenses, earnings per share for
the first nine months of 1995 would have been $1.40, or 17% above
earnings per share in the prior year's first nine months.
Page 9 of 13
PART II -- OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings
On July 18, 1995, an association of certain Roto-Rooter
franchisees filed a lawsuit in the United States District
Court for the Southern District of Florida, Miami Division,
against Roto-Rooter Corporation, Roto-Rooter, Inc. and Chemed
Corporation. Plaintiffs allege that the defendants breached the
franchise agreements and the implied covenant of good faith and
fair dealing by requiring that renewing franchisees execute the
Franchise Agreements with certain revised provisions. These
provisions cover fees, advertising expenditures, territorial
rights, termination, trademarks and sales reporting. Plaintiffs
seek a declaratory judgment that these are unreasonable revisions
which are impermissible under the terms of the Franchise Agreement.
Plaintiffs also seek unspecified amounts of compensatory damages,
lost profits, lost future profits, lost goodwill, costs and
attorneys' fees. The Company disputes these claims.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Exhibit SK 601
No. Ref. No. Description Page No.
------- -------- ------------------ ----------
1 (11) Statement re:
Computation of Per
Share Earnings E-1
2 (27) Financial Data
Schedule E-2
(b) Reports on Form 8-K
--------------------
No reports on Form 8-K were filed during the quarter
ended September 30, 1995.
Page 10 of 13
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.
ROTO-ROOTER, INC.
-------------------------
(Registrant)
Dated: November 10, 1995 By: W.R. Griffin
---------------------- -------------------------
W.R. Griffin
President
Dated: November 10, 1995 By: B.A. Brumm
---------------------- -------------------------
B.A. Brumm
Vice President - Treasurer
and Chief Financial Officer
(Principal Accounting Officer)
Page 11 of 13