- - -------------------------------------------------------------------
- - ------------------------------------------------------------------
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, 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 5,068,324 Shares July 31, 1994
$1 Par Value
- - ------------------------------------------------------------------
- - -------------------------------------------------------------------
Page 1 of 14
<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 -
June 30, 1994 and
December 31, 1993 3
Consolidated Statement of Income -
Three and Six months ended
June 30, 1994 and 1993 4
Consolidated Statement of Cash Flows
Six months ended
June 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 4. Submission of Matters to a Vote
of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
Exhibit I. Computation of Per Share Earnings E-11
</TABLE>
Page 2 of 14<PAGE>
<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>
June 30, December 31,
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 5,198 $ 5,754
Demand Deposits with Chemed Corporation -- 760
Accounts Receivable, Less Allowance (1994--$818;
1993--$652) 6,312 6,318
Inventories --
Raw Materials, Supplies, General Merchandise and
In Process 6,783 6,087
Finished Goods 638 693
Deferred Income Taxes 2,900 2,898
Prepaid Advertising and Other Current Assets 2,898 2,923
---------- ----------
Total Current Assets 24,729 25,433
Property and Equipment, at Cost, Less Accumulated
Depreciation (1994--$13,061; 1993--$11,830) 26,531 25,157
Intangible Assets, Less Accumulated Amortization
(1994--$9,304; 1993--$8,270) 65,291 62,299
Statutory Deposits 12,434 13,176
Other Assets 3,411 2,892
---------- ----------
Total Assets $ 132,396 $ 128,957
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 6,162 $ 8,542
Advances from Chemed Corporation 862 --
Income Taxes -- 404
Deferred Contract Revenue 23,317 23,848
Other Current Liabilities 15,259 16,359
---------- ----------
Total Current Liabilities 45,600 49,153
Deferred Income Taxes 2,898 2,865
Deferred Compensation and Other Noncurrent
Liabilities 7,250 3,282
Long-Term Debt with Chemed Corporation 8,424 8,424
Minority Interest 3,830 3,723
---------- ----------
Total Liabilities 68,002 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--5,268,422 Shares and
1993--5,236,297 Shares) 5,268 5,236
Paid-In Capital 24,441 23,537
Retained Earnings 39,304 37,086
Treasury Stock, at Cost (1994--200,098 Shares and
1993--190,812 Shares) (4,619) (4,349)
---------- ----------
Total Stockholders' Equity 64,394 61,510
---------- ----------
Total Liabilities and Stockholders' Equity $ 132,396 $ 128,957
========== ==========
</TABLE>
See accompanying notes to unaudited financial statements.
Page 3 of 14
<PAGE>
ROTO-ROOTER, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share data)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Operating Revenues $ 41,900 $ 28,833 $ 83,436 $ 56,401
-------- -------- -------- --------
Cost of Services Provided and
Products Sold 26,326 16,001 52,272 31,538
Selling, General and Administrative
Expenses 10,248 8,637 20,524 16,938
Depreciation and Amortization 1,849 1,007 3,637 1,982
--------- --------- -------- --------
Total Costs and Expenses 38,423 25,645 76,433 50,458
--------- --------- -------- --------
Income from Operations 3,477 3,188 7,003 5,943
Interest Expense (148) (64) (283) (135)
Other Income - Net 106 236 159 496
--------- --------- -------- --------
Income before Income Taxes 3,435 3,360 6,879 6,304
Income Taxes 1,481 1,386 3,017 2,595
--------- --------- -------- --------
Income before Minority Interest 1,954 1,974 3,862 3,709
Minority Interest 48 114 107 213
--------- --------- -------- --------
Net Income $ 1,906 $ 1,860 $ 3,755 $ 3,496
========= ========= ======== ========
Earnings Per Common Share $ .38 $ .37 $ .74 $ .70
========= ========= ======== ========
Average Number of Shares
Outstanding 5,068 5,020 5,061 5,019
========= ========= ======== ========
Cash Dividends Paid Per Share $ .14 $ .125 $ .28 $ .25
========= ========= ======== ========
</TABLE>
See accompanying notes to unaudited financial statements.
Page 4 of 14
<PAGE>
ROTO-ROOTER, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------------
1994 1993
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 3,755 $ 3,496
Depreciation and Amortization 3,637 1,982
Provision for Deferred Income Taxes 273 304
Changes in Operating Assets and
Liabilities (5,028) 40
Change in Statutory Reserve Requirements 742 (452)
Other (734) (649)
--------- ---------
Net Cash Provided by Operating
Activities: 2,645 4,721
--------- ---------
Cash Flows from Investing Activities:
Capital Expenditures (4,249) (2,388)
Business Combinations (119) (254)
Proceeds from Disposition of Property
and Equipment 367 211
--------- ---------
Net Cash Used for Investing
Activities (4,001) (2,431)
--------- ---------
Cash Flows from Financing Activities:
Dividends Paid (1,419) (1,255)
Demand Deposits with Chemed Corporation 1,622 (757)
All Other 597 109
--------- ---------
Net Cash Provided by/(Used for)
Financing Activities 800 (1,903)
--------- ---------
Net (Decrease) Increase in Cash and
Cash Equivalents (556) 387
Cash and Cash Equivalents at Beginning
of Period 5,754 4,517
--------- ---------
Cash and Cash Equivalents at End of Period $ 5,198 $ 4,904
========= =========
</TABLE>
See accompanying notes to unaudited financial statements
Page 5 of 14
<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 June 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 transaction is not
reflected in the Consolidated Statement of Cash Flows.
Page 6 of 14
<PAGE>
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1994, as noted on the
Consolidated Statement of Cash Flows, the change in operating
assets and liabilities was a net decrease of $5,028,000 for the
six months ended June 30, 1994 as compared with a net increase of
$40,000 for the six months ended June 30, 1993. The primary
reasons for this change were:
1. Accounts payable declined from $8,542,000 at
December 31, 1993 to $6,162,000 at June 30, 1994
as a result of the timing of the payments of
certain bills at the end of the second quarter
of 1994 compared with the end of 1993.
2. Billings on our casualty insurance program in the
first six months of 1994 were $3,641,000 as compared
with $2,633,000 for the first six months of 1993.
In addition, capital expenditures increased from $2,388,000
in the first six months of 1993 to $4,249,000 in the first six
months of 1994. The higher capital expenditures in 1994 resulted
primarily from investments in machinery, equipment and vehicles
to facilitate the continued growth of Roto-Rooter's service
contract, plumbing and drain cleaning businesses. In addition,
the 1993 business period did not include the Encore Service
Systems, Inc. ("Encore") business which was acquired in July
1993. Encore provides repair and maintenance services through
the sale of service contracts. The company anticipates that its
capital expenditures for full year 1994 will be between
$4,500,000 and $6,000,000.
RESULTS OF OPERATIONS
Second Quarter 1994 Versus Second Quarter 1993
----------------------------------------------
For the three months ended June 30, 1994, total operating
revenues increased to $41,900,000, a 45% increase over the
$28,833,000 reported in the comparable 1993 quarter. Encore
contributed 33 percentage points of the total 45% growth.
Plumbing revenues increased to $8,845,000, or 19% above the
comparable prior year and sewer and drain cleaning revenues
increased to $12,478,000, a 6% increase over the prior year.
Page 7 of 14
<PAGE>
Income from operations increased to $3,477,000 in the three
months ended June 30, 1994 or 9.1% above the $3,188,000 reported
in the three months ended June 30, 1993. The income from
operations margin, however, declined from 11.1% of total
operating revenues for the second quarter of 1993 to 8.3% of
total operating revenues in the second quarter of 1994.
There were several items affecting our operating margin in
the second quarter of 1994 when compared with the second quarter
of 1993. Favorably affecting Roto-Rooter's operating margin was
the decline in insurance costs from 3.9% of sales in 1993 to 2.9%
of sales in the second quarter of 1994. The decline in insurance
costs reflects the ongoing success of the company's safety
programs implemented during the past several years to encourage
worker safety and to contain rising insurance costs. Unfavorably
affecting margins during the second quarter 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, labor and depreciation costs
as a percent of sales.
The higher material usage costs result 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 to address those areas
where reduced materials could be used on service calls.
The higher labor costs as a percent of sales results from
expansion of service technician manpower in our service contract
business faster than the rate of service contract growth and
expansion of the plumbing and drain cleaning labor forces for the
expected continued growth of these businesses. In addition, the
company has made investments in labor in key areas of the
business which are important to future growth. The areas of
these investments were primarily sales and training related. The
company is working to bring its manpower in its service contract
business in line with its service contract growth. The expansion
of the drain cleaning, plumbing, and heating ventilation and air
conditioning workforces, as well as investments in the training
areas of the company, represent investments being made to assist
in the future growth of the company.
As mentioned in the Liquidity and Capital Resources section
of this report, capital expenditures have been running ahead of
prior year for the first six months of 1994, with the resulting
effect that depreciation expense has been running at a higher
level as a percent of sales, as compared to the prior year. It
is expected that depreciation expense will moderate and decline
Page 8 of 14
<PAGE>
as a percent of sales over the last six months of 1994 as
compared with the first six months of 1994.
In the future, the consolidation of purchasing between Amira
Services, Inc. (a business providing repair and maintenance
services through service contracts that was acquired in August
1991) and Encore will help lower material costs and as our
service contract businesses achieve greater efficiencies, the
margins in these businesses should improve.
During the second quarter of 1994, Roto-Rooter continued to
make investments that, while contributing to short-term margin
decline, position the company for long-term growth. These
include investments in diversification, expanding and training
the company's labor force and upgrading systems and equipment.
The company continued to develop its heating, ventilation and air
conditioning ("HVAC") business in the second quarter. The
company is currently offering HVAC repair and maintenance
services in five cities served by company-owned operations. The
company plans to expand HVAC services to four additional markets
by early 1995.
Interest expense increased from $64,000 for the second
quarter of 1993 to $148,000 for the second quarter of 1994 as a
result of the issuance of $4,224,000 of long-term debt to Chemed
to help partially finance the Encore acquisition in July 1993.
Other Income - Net declined from $236,000 for the three months
ended June 30, 1993 to $106,000 for the three months ended June
30, 1994. This decline was primarily a result of the company
having a lower average balance of interest earning cash
equivalents during the second quarter of 1994 as compared with
the second quarter of 1993. The lower average balance of
interest earning cash equivalents during the second quarter
resulted primarily from the cash outlay for the Encore
acquisition.
The company's effective income tax rate for the second
quarter of 1994 was 43.1% which compares with 41.3% for the
second quarter of 1993. The higher income tax rate resulted
primarily from non-deductible intangibles amortization incurred
in the Encore acquisition.
Net income for the second quarter of 1994 was $1,906,000, a
2% increase over the $1,860,000 reported in the comparable 1993
quarter. Earnings per share for the second quarter of 1994 were
38 cents, or 3% above the prior year's second quarter earnings
per share of 37 cents.
First Six Months of 1994 versus First Six Months of 1993
--------------------------------------------------------
For the six months ended June 30, 1994, total operating revenues
increased to $83,436,000, or 48% above the $56,401,000 reported
Page 9 of 14
<PAGE>
in the first six months of last year. Encore contributed 34
percentage points to this 48% increase. Also contributing to the
revenue growth were sewer and drain cleaning revenues, which
increased to $25,235,000 or 8% above the prior year and plumbing
revenues which increased to $17,730,000 or 24% above the prior
year.
Income from operations increased to $7,003,000 for the first
six months of 1994, or 18% above the $5,943,000 reported in the
first six months of 1993. The operating margin declined from
10.5% of sales in the first six months of 1993 to 8.4% for the
six months ending June 30, 1994. The reasons for the lower
margins in the first six months of 1994 as compared with the
first six months of 1993 are the same reasons as those discussed
previously in the second quarter financial analysis.
Interest expense increased from $135,000 for the six months
ended June 30, 1993 to $283,000 for the six months ended June 30,
1994 as a result of the issuance of $4,224,000 of long term debt
to Chemed to help partially finance the Encore acquisition in
July 1993.
Other Income - Net declined from $496,000 for the six months
ended June 30, 1993 to $159,000 for the six months ended June 30,
1994, primarily as the result of the company having a lower
average balance of interest earning cash equivalents during the
first six months of 1994 as compared with the first six months of
1993. The lower average balance of interest earning cash
equivalents during this six-month period resulted primarily from
the cash outlay for the Encore acquisition.
The company's effective income tax rate for the first six
months of 1994 was 43.9% which compares with 41.2% for the first
six months of 1993. The higher effective income tax rate
resulted primarily from non-deductible intangibles amortization
incurred in the Encore acquisition.
Net income for the first six months of 1994 was $3,755,000, a
7% increase over the $3,496,000 reported in the comparable 1993
period. Earnings per share for the six months ended June 30,
1994 were 74 cents, or 6% above the prior year's first six months
earnings per share of 70 cents.
Page 10 of 14
<PAGE>
PART II -- OTHER INFORMATION
----------------------------
Item 4. Submission of Matters to a Vote of Security Holders
(a) Roto-Rooter held its Annual Meeting of Stockholders on
May 16, 1994.
(b) The names of directors elected at this Annual Meeting
are as follows:
<TABLE>
<CAPTION>
<C> <C>
Edward L. Hutton Will J. Hoekman
William R. Griffin Jerome E. Schnee
Brian A. Brumm Thomas C. Hutton
James A. Cunningham Patrick L. Johnson
Naomi C. Dallob Jon D. Krahulik
Charles H. Erhart, Jr. Sandra E. Laney
Neal Gilliatt Kevin J. McNamara
Lawrence J. Gillis Timothy S. O'Toole
J. Peter Grace D. Walter Robbins, Jr.
Douglas B. Harper
</TABLE>
(c) The Stockholders then ratified the selection by the Board of
Directors of Price Waterhouse as independent accountants for
the Company and its consolidated subsidiaries for the year
1994. 4,814,350 votes were cast in favor of the proposal,
10 votes were cast against it, 841 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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Votes Votes Broker
Votes For Against Withheld Non-Votes
--------- ------- -------- ---------
E.L. Hutton 4,796,278 18,923 500 0
W.R. Griffin 4,796,778 18,423 0 0
B.A. Brumm 4,796,778 18,423 0 0
J.A. Cunningham 4,796,028 19,173 750 0
N.C. Dallob 4,795,328 19,873 1,450 0
C.J. Erhart, Jr. 4,796,028 19,173 750 0
N. Gilliatt 4,796,028 19,173 750 0
L.J. Gillis 4,796,528 18,673 250 0
J.P. Grace 4,795,128 20,073 1,650 0
D.B. Harper 4,796,528 18,673 250 0
W.J. Hoekman 4,796,578 18,623 200 0
T.C. Hutton 4,795,828 19,373 950 0
P.L. Johnson 4,796,528 18,673 250 0
J.D. Krahulik 4,795,328 19,873 1,450 0
S.E. Laney 4,796,278 18,923 500 0
</TABLE>
Page 11 of 14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Votes Votes Broker
Votes For Against Withheld Non-Votes
--------- ------- -------- ---------
K.J. McNamara 4,796,328 18,873 450 0
T.S. O'Toole 4,796,078 19,123 700 0
D.W. Robbins,Jr. 4,795,828 19,373 950 0
J.E. Schnee 4,795,728 19,473 1,050 0
</TABLE>
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
</TABLE>
(b) Reports on Form 8-K
--------------------
No reports on Form 8-K were filed during the quarter
ended June 30, 1994.
Page 12 of 14
<PAGE>
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: August 5, 1994 By: W.R. Griffin
---------------------- -------------------------
W.R. Griffin
President
Dated: August 5, 1994 By B.A. Brumm
---------------------- -------------------------
B.A. Brumm
Vice President - Treasurer
and Chief Financial Officer
(Principal Accounting Officer)
Page 1 3 of 14
<PAGE>
EXHIBIT 11
ROTO-ROOTER, INC. AND SUBSIDIARY COMPANIES
<F1> COMPUTATION OF PER SHARE EARNINGS (a)
(in thousands except per share amount)
unaudited
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------- --------------------
1994 1993 1994 1993
------------------- -------------------
<S> <C> <C> <C> <C>
Computation of Earnings Per
Common Share and Common
Equivalent Share:
- - ---------------------------
Net Income $1,906 $1,860 $3,755 $3,496
======= ======= ======= =======
Average Number of Shares Used
to Compute Earnings
per Common Share 5,068 5,020 5,061 5,019
Effect of Unexercised
Stock Options 57 47 66 49
------- ------- ------- -------
Average Number of Shares Used
to Compute Earnings per
Common and Common
Equivalent Share 5,125 5,067 5,127 5,068
======= ======= ======= =======
Earnings per Common and
Common Equivalent Share $ .37 $ .37 $ .73 $ .69
======= ======= ======= =======
Computation of Earnings
Per Common Share Assuming
Full Dilution:
- - ---------------------------
Net Income $1,906 $1,860 $3,755 $3,496
======= ======= ======= =======
Average Number of Shares
Used to Compute Earnings
per Common Share 5,068 5,020 5,061 5,019
Effect of Unexercised
Stock Options 68 52 81 54
------- ------- ------- -------
Average Number of Shares
Used to Compute Earnings
per Common Share Assuming
Full Dilution 5,136 5,072 5,142 5,073
======= ======= ======= =======
Earnings per Common Share
Assuming Full Dilution $ .37 $ .37 $ .73 $ .69
======= ======= ======= =======
</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 - 11
Page 14 of 14<PAGE>
