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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, 1994
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 5,071,595 Shares October 31, 1994
$1 Par Value
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Page 1 of 12<PAGE>
ROTO-ROOTER, INC. AND
SUBSIDIARY COMPANIES
Index
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheet -
September 30, 1994 and
December 31, 1993 3
Consolidated Statement of Income -
Three and Nine months ended
September 30, 1994 and 1993 4
Consolidated Statement of Cash Flows
Nine months ended
September 30, 1994 and 1993 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
Item 6. Exhibits and Reports on Form 8-K 11
Exhibit I. Computation of Per Share Earnings E-1
Exhibit II.Financial Data Schedule E-2
</TABLE>
Page 2 of 13<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ROTO-ROOTER, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
UNAUDITED
(in thousands except share and per share data)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 7,751 $ 5,754
Demand Deposits with Chemed Corporation 1,265 760
Accounts Receivable, Less Allowance
(1994--$935; 1993--$652) 6,254 6,318
Inventories --
Raw Materials, Supplies, General Merchandise
and In Process 6,869 6,087
Finished Goods 736 693
Deferred Income Taxes 2,713 2,898
Prepaid Advertising and Other Current Assets 2,327 2,923
---------- ----------
Total Current Assets 27,915 25,433
Property and Equipment, at Cost, Less Accumulated
Depreciation (1994--$13,795; 1993--$11,830) 26,223 25,157
Intangible Assets, Less Accumulated Amortization
(1994--$9,838; 1993--$8,270) 65,299 62,299
Statutory Deposits 12,681 13,176
Other Assets 3,304 2,892
---------- ----------
Total Assets $ 135,422 $ 128,957
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 6,694 $ 8,542
Income Taxes 1,094 404
Deferred Contract Revenue 22,968 23,848
Other Current Liabilities 15,912 16,359
---------- ----------
Total Current Liabilities 46,668 49,153
Deferred Income Taxes 2,510 2,865
Deferred Compensation and Other Noncurrent
Liabilities 7,898 3,282
Long-Term Debt with Chemed Corporation 8,424 8,424
Minority Interest 3,875 3,723
---------- ----------
Total Liabilities 69,375 67,447
---------- ----------
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 1994--5,270,904 Shares
and 1993--5,236,297 Shares) 5,271 5,236
Paid-In Capital 24,490 23,537
Retained Earnings 40,938 37,086
Treasury Stock, at Cost (1994--201,409 Shares
and 1993--190,812 Shares) (4,652) (4,349)
---------- ----------
Total Stockholders' Equity 66,047 61,510
---------- ----------
Total Liabilities and Stockholders' Equity $ 135,422 $ 128,957
========== ==========
</TABLE>
See accompanying notes to unaudited financial statements.
Page 3 of 13<PAGE>
ROTO-ROOTER, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share data)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Operating Revenues $ 43,057 $ 38,290 $126,493 $ 94,691
-------- -------- -------- --------
Cost of Services Provided and
Products Sold 26,371 23,738 78,643 55,276
Selling, General and
Administrative Expenses 10,670 9,344 31,194 26,282
Depreciation and Amortization 1,817 1,501 5,454 3,483
--------- --------- -------- --------
Total Costs and Expenses 38,858 34,583 115,291 85,041
--------- --------- -------- --------
Income from Operations 4,199 3,707 11,202 9,650
Interest Expense (220) (137) (543) (272)
Other Income - Net 185 216 384 712
--------- --------- -------- --------
Income before Income Taxes 4,164 3,786 11,043 10,090
Income Taxes 1,790 1,582 4,807 4,177
--------- --------- -------- --------
Income before Minority Interest 2,374 2,204 6,236 5,913
Minority Interest 45 92 152 305
--------- --------- -------- --------
Net Income $ 2,329 $ 2,112 $ 6,084 $ 5,608
========= ========= ======== ========
Earnings Per Common Share $ .46 $ .42 $ 1.20 $ 1.12
========= ========= ======== ========
Average Number of Shares
Outstanding 5,069 5,029 5,064 5,023
========= ========= ======== ========
Cash Dividends Paid Per Share $ .15 $ .14 $ .43 $ .39
========= ========= ======== ========
</TABLE>
See accompanying notes to unaudited financial statements.
Page 4 of 13<PAGE>
ROTO-ROOTER, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------
1994 1993
-------- -------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 6,084 $ 5,608
Depreciation and Amortization 5,454 3,483
Provision for Deferred Income Taxes 274 (307)
Changes in Operating Assets
and Liabilities (2,650) (607)
Change in Statutory Reserve
Requirements 583 (2,123)
Other (714) (451)
--------- ---------
Net Cash Provided by Operating
Activities: 9,031 5,603
--------- ---------
Cash Flows from Investing Activities:
Capital Expenditures (5,470) (4,007)
Business Combinations (119) (18,685)
Proceeds from Disposition of Property
and Equipment 650 373
--------- ---------
Net Cash Used for Investing
Activities (4,939) (22,319)
--------- ---------
Cash Flows from Financing Activities:
Dividends Paid (2,179) (1,960)
Proceeds from Issuance of Long-Term Debt -- 4,249
Minority Investment in Subsidiary -- 1,056
Advances From/(To) Chemed Corporation (505) 14,724
All Other 589 204
--------- ---------
Net Cash Provided by/(Used for)
Financing Activities (2,095) 18,273
--------- ---------
Net Increase in Cash and
Cash Equivalents 1,997 1,557
Cash and Cash Equivalents at
Beginning of Period 5,754 4,517
--------- ---------
Cash and Cash Equivalents at End of Period $ 7,751 $ 6,074
========= =========
</TABLE>
See accompanying notes to unaudited financial statements
Page 5 of 13<PAGE>
ROTO-ROOTER, INC. 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 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, 1993.
2. Earnings per common share are computed on the basis of the
weighted average number of shares of common stock outstanding
during the respective periods.
3. The acquisition of Encore Service Systems, Inc. ("Encore") on
July 16, 1993 called for a purchase price of $17,000,000 in
cash at closing plus contingent payments based upon the
achievement of certain sales and earnings objectives during
the 36-month period following the date of acquisition.
Based on Encore's results through September 30, 1994,
management believes it is probable that the sales-based
contingent payment will be earned in full. The present value
of the $3,800,000 contingent payment due in July 1996 is
$3,338,000. This amount was recorded at June 30, 1994 in
both intangible assets (goodwill) and other noncurrent
liabilities. Because it is a non-cash transaction, this
contingent payment is not reflected in the Consolidated
Statement of Cash Flows.
Page 6 of 13
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1994, as noted on the
Consolidated Statement of Cash Flows, the company produced
$9,031,000 of cash from operating activities. This amount was
well in excess of the amounts needed to finance capital
expenditures and dividends of $5,470,000, and $2,179,000,
respectively. After these uses, the company still had $1,382,000
of cash available for business combinations and other uses.
At September 30, 1994 current liabilities exceeded current
assets by $18,753,000. This working capital deficit has been
narrowed from the $23,720,000 deficit at December 31, 1993. In
addition, at September 30, 1994, $22,968,000 of the current
liabilities consist of deferred contract revenue which will not
require a comparable cash outlay. The company's long-term debt,
as a percentage of its stockholders' equity, has improved from
14.7% at December 31, 1993 to 14.0% at September 30, 1994.
Management is confident that earnings of the company and other
sources of liquidity will continue to be sufficient to meet the
company's cash needs on an ongoing basis.
RESULTS OF OPERATIONS
Third Quarter 1994 Versus Third Quarter 1993
----------------------------------------------
For the three months ended September 30, 1994, total operating
revenues increased to $43,057,000, a 12% increase over the
$38,290,000 reported in the comparable 1993 quarter. Plumbing
revenues increased to $9,481,000, or 18% above the comparable
prior year and sewer and drain cleaning revenues increased to
$13,127,000, a 9% increase over the prior year.
Income from operations increased to $4,199,000 in the three
months ended September 30, 1994 or 13% above the $3,707,000
reported in the three months ended September 30, 1993. The
income from operations margin improved from 9.7% of total
operating revenues for the third quarter of 1993 to 9.8% of total
operating revenues in the third quarter of 1994. There were two
major items affecting the operating margin in the third quarter
of 1994 when compared with the third quarter of 1993. Favorably
affecting Roto-Rooter's operating margin was the decline in
insurance costs from 4.3% of sales in 1993 to 3.0% of sales in
the third quarter of 1994. The decline in insurance costs
reflects the ongoing success of the company's safety programs
Page 7 of 13
implemented during the past several years to encourage worker
safety and to contain rising insurance costs. Unfavorably
affecting margins during the third quarter were higher material
costs in the company's plumbing and service contract businesses.
During the third quarter we saw margin improvement in the
service contract business relative to the first six months of the
year. This margin improvement was largely a result of lower
labor costs as a percentage of sales. The company expects
further profit margin improvement in its service contract
business in the future. In order to improve margins further,
Roto-Rooter has begun phasing in standardized pricing structures
throughout its service contract business. In addition, the
company has taken steps to improve the profitability of those
groups of service contracts having unsatisfactory margins, as
well as to institute a consistent pricing strategy across its
service contract customer base.
As expected, the result of these price changes has been a
small decline in the contract renewal rate during the past two
quarters. However, the company feels this decline will be
temporary. The company is implementing a number of service
enhancements in its service contract business that should improve
renewal rates as it moves forward. Among the changes are
extended service hours, including evenings and Saturdays, and
improved systems for handling customer calls.
The higher material costs in the company's plumbing
operations, as a percent of sales, is affecting about one fourth
of the company's plumbing operations. The company has increased
training of local management to improve skills in managing
material costs. The company expects to see improving plumbing
material costs, as a percent of sales, over the next 12 months.
Interest expense increased from $137,000 for the third
quarter of 1993 to $220,000 for the third quarter of 1994 due to
a combination of two additional weeks in 1994 of interest expense
on $4,224,000 of long-term debt to Chemed to help finance the
Encore acquisition, higher interest rates on the company's
variable rate debt, and interest expense on the payment due in
July 1996 on the Encore acquisition.
The company's effective income tax rate for the third quarter
of 1994 was 43% which compares with 41.8% for the third quarter
of 1993. The higher income tax rate resulted primarily from
increased state and local taxation resulting from increased
profitability in jurisdictions with higher tax rates.
Net income for the third quarter of 1994 was $2,329,000, a
10% increase over the $2,112,000 reported in the comparable 1993
quarter. Earnings per share for the third quarter of 1994 were
46 cents, or 10% above the prior year's third quarter earnings
per share of 42 cents.
Page 8 of 13
First Nine Months of 1994 versus First Nine Months of 1993
--------------------------------------------------------
For the nine months ended September 30, 1994, total operating
revenues increased to $126,493,000, or 34% above the $94,691,000
reported in the first nine months of last year. Encore
contributed 21 percentage points to this 34% increase. Also
contributing to the revenue growth were sewer and drain cleaning
revenues, which increased to $38,632,000 or 8% above the prior
year and plumbing revenues which increased to $27,211,000 or 22%
above the prior year.
Income from operations increased to $11,202,000 for the first
nine months of 1994, or 16% above the $9,650,000 reported in the
first nine months of 1993. The operating margin declined from
10.2% of sales in the first nine months of 1993 to 8.9% for the
nine months ending September 30, 1994. There were several items
affecting our operating margins in the first nine months of 1994
when compared with the first nine months of 1993. Favorably
affecting Roto-Rooter's operating margin was a decline in
insurance costs from 4.4% of sales in 1993 to 2.9% of sales for
the first nine months of 1994. Unfavorably affecting margins
during the first nine months of 1994 were (1) the Encore
acquisition, which as expected, has lower margins than those
margins achieved in the company's other repair and maintenance
businesses, and (2) higher material and labor costs as a percent
of sales.
The higher material usage costs resulted from higher material
usage per service call in the service contract business, and a
changing sales mix to jobs that have a higher material cost
component. The higher material usage per service call in our
service contract business is being addressed in part by enhancing
the training of new service technicians in areas where reduced
materials could be used on service calls. Material usage costs
in the third quarter were comparable, as a percent of sales, to
those achieved in the second quarter of 1994.
The higher labor costs, as a percent of sales, resulted from
expansion of the service technician manpower in our service
contract business faster than the rate of service contract growth
(during the first two quarters of 1994) and expansion of the
plumbing and drain cleaning labor forces for the expected
continued growth of these businesses. In addition, as mentioned
in the company's second quarter 1994 Form 10-Q, the company has
made investments in labor in key areas of the business which are
important to future growth. These investments were primarily
sales and training related. The company was successful during
the third quarter in bringing its manpower in its service
contract business in line with its service contract growth.
Interest expense increased from $272,000 for the nine months
ended September 30, 1993 to $543,000 for the nine months ended
September 30, 1994 for the same reasons as those discussed in the
third quarter analysis.
Page 9 of 13
Other Income - Net declined from $712,000 for the nine months
ended September 30, 1993 to $384,000 for the nine months ended
September 30, 1994, primarily as the result of a lower average
balance of interest earning cash equivalents during the first
nine months of 1994 as compared with the first nine months of
1993. This lower average balance resulted primarily from the
cash outlay for the Encore acquisition.
The company's effective income tax rate for the first nine
months of 1994 was 43.5% which compares with 41.4% for the first
nine months of 1993. The higher effective income tax rate
resulted from non-deductible intangibles amortization incurred in
the Encore acquisition, combined with higher effective state
taxes.
Net income for the first nine months of 1994 was $6,084,000,
an 8% increase over the $5,608,000 reported in the comparable
1993 period. Earnings per share for the nine months ended
September 30, 1994 were $1.20, or 7% above the prior year's first
nine months earnings per share of $1.12.
Page 10 of 13
PART II -- OTHER INFORMATION
----------------------------
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
<TABLE>
<CAPTION>
Exhibit SK 601
No. Ref. No. Description Page No.
------- -------- ------------------ ----------
<C> <C> <S> <C>
1 (11) Statement re:
Computation of Per
Share Earnings E-1
2 (27) Financial Data
Schedule E-2
</TABLE>
(b) Reports on Form 8-K
--------------------
No reports on Form 8-K were filed during the quarter
ended September 30, 1994.
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 9, 1994 By: W.R. Griffin
---------------------- -------------------------
W.R. Griffin
President
Dated: November 9, 1994 By: B.A. Brumm
---------------------- -------------------------
B.A. Brumm
Vice President - Treasurer
and Chief Financial Officer
(Principal Accounting Officer)
Page 1 1 of 13
EXHIBIT 11
ROTO-ROOTER, INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF PER SHARE EARNINGS (a)
(in thousands except per share amount)
unaudited
<F1>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- --------------------
1994 1993 1994 1993
-------- -------- ------- ---------
<S> <C> <C> <C> <C>
Computation of Earnings Per
Common Share and Common
Equivalent Share:
- - ---------------------------
Net Income $2,329 $2,112 $6,084 $5,608
======= ======= ======= =======
Average Number of Shares Used
to Compute Earnings
per Common Share 5,069 5,029 5,064 5,023
Effect of Unexercised
Stock Options 39 70 57 54
------- ------- ------- -------
Average Number of Shares Used
to Compute Earnings per
Common and Common
Equivalent Share 5,108 5,099 5,121 5,077
======= ======= ======= =======
Earnings per Common and
Common Equivalent Share $ .46 $ .41 $ 1.19 $ 1.11
======= ======= ======= =======
Computation of Earnings
Per Common Share Assuming
Full Dilution:
- - ---------------------------
Net Income $2,329 $2,112 $6,084 $5,608
======= ======= ======= =======
Average Number of Shares
Used to Compute Earnings
per Common Share 5,069 5,029 5,064 5,023
Effect of Unexercised
Stock Options 40 95 57 98
------- ------- ------- -------
Average Number of Shares
Used to Compute Earnings
per Common Share Assuming
Full Dilution 5,109 5,124 5,121 5,121
======= ======= ======= =======
Earnings per Common Share
Assuming Full Dilution $ .46 $ .41 $ 1.19 $ 1.10
======= ======= ======= =======
</TABLE>
- - ------------------
<F1>
(a) This calculation is submitted in accordance with Regulation S-K, Item
601(b)(11), although not required by footnote 2 to paragraph 14 of
APB Opinion No. 15 because it results in dilution of less than 3%,
including fractional cents per share.
E - 1
Page 12 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Form 10-Q for the quarter ended September 30, 1994 for Roto-Rooter, Inc.
and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000755548
<NAME> ROTO-ROOTER, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 7,751
<SECURITIES> 0
<RECEIVABLES> 7,189
<ALLOWANCES> (935)
<INVENTORY> 7,605
<CURRENT-ASSETS> 27,915
<PP&E> 40,018
<DEPRECIATION> (13,795)
<TOTAL-ASSETS> 135,422
<CURRENT-LIABILITIES> 46,668
<BONDS> 8,424
<COMMON> 5,271
0
0
<OTHER-SE> 60,776
<TOTAL-LIABILITY-AND-EQUITY> 135,422
<SALES> 6,239
<TOTAL-REVENUES> 126,493
<CGS> 3,582
<TOTAL-COSTS> 78,643
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 283
<INTEREST-EXPENSE> 543
<INCOME-PRETAX> 11,043
<INCOME-TAX> 4,807
<INCOME-CONTINUING> 6,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,084
<EPS-PRIMARY> 1.20
<EPS-DILUTED> 1.20
</TABLE>
