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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: March 31, 1996
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 5,152,710 Shares May 7, 1996
$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 -
March 31, 1996 and December 31, 1995 3
Consolidated Statement of Income -
Three Months Ended
March 31, 1996 and 1995 4
Consolidated Statement of Cash Flows
Three Months Ended
March 31, 1996 and 1995 5
Notes to Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
Exhibit 11. Computation of Per
Share Earnings E-1
Exhibit 27. Financial Data Schedule E-2
</TABLE>
Page 2 of 11<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>
March 31, December 31,
1996 1995
---------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 2,365 $ 2,350
Demand Deposits with Chemed Corporation 15,831 12,974
Statutory Deposits 19,134 18,943
Accounts Receivable, Less Allowance
(1996--$1,072; 1995--$1,050) 6,697 6,616
Inventories --
Raw Materials, Supplies, General Merchandise
and In Process 7,363 6,899
Finished Goods 773 924
Deferred Income Taxes 3,128 3,168
Prepaid Advertising and Other Current Assets 2,794 2,741
---------- ----------
Total Current Assets 58,085 54,615
Property and Equipment, at Cost, Less Accumulated
Depreciation (1996--$19,745; 1995--$18,621) 24,840 25,121
Intangible Assets, Less Accumulated Amortization
(1996--$13,488; 1995--$12,883) 65,079 65,515
Other Assets 5,636 4,618
---------- ----------
Total Assets $ 153,640 $ 149,869
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 9,421 $ 8,606
Deferred Contract Revenue 24,787 23,512
Income Taxes 5,762 851
Other Current Liabilities 20,432 21,762
---------- ----------
Total Current Liabilities 60,402 54,731
Deferred Income Taxes -- 2,696
Deferred Compensation and Other
Noncurrent Liabilities 5,105 4,979
Long-Term Debt with Chemed Corporation 6,924 8,424
Minority Interest 4,105 4,053
---------- ----------
Total Liabilities 76,536 74,883
---------- ----------
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 1996--5,444,612 Shares
and 1995--5,413,054 Shares) 5,445 5,413
Paid-In Capital 28,384 27,521
Retained Earnings 51,000 49,309
Treasury Stock, at Cost (1996--292,952 Shares
and 1995--278,517 Shares) (7,725) (7,257)
---------- ----------
Total Stockholders' Equity 77,104 74,986
---------- ----------
Total Liabilities and Stockholders' Equity $ 153,640 $ 149,869
========== ==========
</TABLE>
See accompanying notes to unaudited financial statements.
Page 3 of 11<PAGE>
ROTO-ROOTER, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF INCOME
(in thousands except per share data)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995
-------- --------
<S> <C> <C>
Total Operating Revenues $ 47,783 $ 43,727
-------- --------
Cost of Services Provided and
Products Sold 28,731 26,646
Selling, General and Administrative
Expenses 12,878 11,281
Depreciation and Amortization 1,975 1,926
-------- --------
Total Costs and Expenses 43,584 39,853
-------- --------
Income from Operations 4,199 3,874
Interest Expense (217) (169)
Other Income - Net 546 365
-------- --------
Income before Income Taxes 4,528 4,070
Income Taxes 1,917 1,750
-------- --------
Income before Minority Interest 2,611 2,320
Minority Interest 52 69
-------- --------
Net Income $ 2,559 $ 2,251
======== ========
Earnings Per Common Share $ .50 $ .44
======== ========
Average Number of Shares Outstanding 5,144 5,081
======== ========
Cash Dividends Paid Per Share $ .17 $ .15
======== ========
</TABLE>
See accompanying notes to unaudited financial statements.
Page 4 of 11<PAGE>
ROTO-ROOTER, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1996 1995*
-------- -------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 2,559 $ 2,251
Depreciation and Amortization 1,975 1,926
Provision for Deferred Income Taxes (2,313) (223)
Changes in Operating Assets and Liabilities 5,347 1,190
Change in Statutory Reserve Requirements (191) (1,202)
Other (1,161) (481)
--------- ---------
Net Cash Provided by Operating Activities 6,216 3,461
--------- ---------
Cash Flows from Investing Activities:
Capital Expenditures (1,317) (834)
Business Combinations (168) (1,059)
Proceeds from Disposition of Property
and Equipment 257 458
-------- ---------
Net Cash Used for Investing Activities (1,228) (1,435)
-------- ---------
Cash Flows from Financing Activities:
Dividends Paid (868) (763)
Repayment of Debt (1,672) (34)
Proceeds from Issuance of Long-Term Debt -- 327
Advances To Chemed Corporation (2,860) (1,963)
All Other 427 323
-------- ---------
Net Cash Used for
Financing Activities (4,973) (2,110)
-------- ---------
Net Increase (Decrease) in Cash and
Cash Equivalents 15 (84)
Cash and Cash Equivalents at Beginning of Period 2,350 937
-------- --------
Cash and Cash Equivalents at End of Period $ 2,365 $ 853
======== ========
</TABLE>
*Reclassified to conform to current year presentation.
See accompanying notes to unaudited financial statements
Page 5 of 11<PAGE>
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 fairl y 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, 1995.
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 and exclude the dilutive effect
of outstanding stock options as it is not material.
Page 6 of 11
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
FINANCIAL CONDITION
Income taxes currently payable increased from $851,000 at
December 31, 1995 to $5,762,000 at March 31, 1996. The increase
resulted from higher taxable income in the first quarter of 1996
as compared with the first quarter of 1995 and the completion of
an Internal Revenue Service ("IRS") tax audit for calendar years
1991 through 1993. The IRS audit resulted in an additional
assessment of $2,940,000 which was paid in April 1996. The
additional assessment primarily resulted from the IRS spreading
deductible acquisition-related costs over longer periods than the
company had used. The settlement of the IRS audit also resulted
in noncurrent deferred income taxes declining from $2,696,000 at
December 31, 1995 to zero at March 31, 1996. In addition, during
the first quarter of 1996, the company repaid $1,500,000 of its
long-term debt with Chemed Corporation. Notwithstanding these
changes, the company's cash position and other working capital
were not significantly impacted and management believes that
resources are adequate for the company's needs.
RESULTS OF OPERATIONS
First Quarter 1996 Versus First Quarter 1995
----------------------------------------------
In the first quarter of 1996, the company's total operating
revenues increased to $47,783,000, or 9.3% over first quarter
1995 revenues. Excluding Encore Maintenance and Management,
("M&M") (a business that was sold effective March 31, 1995),
Roto-Rooter's total operating revenues for the three month period
ending March 31, 1996 would have been 11.2% above comparable
revenues of $42,976,000 in 1995. The increase in operating
revenues, excluding M&M, for the first three months of 1996 was
due primarily to higher sewer and drain cleaning and plumbing
revenues. Sewer and drain cleaning revenues increased to
$15,587,000, or 8.8% above the $14,327,000 reported in the first
three months of 1995. Plumbing revenues grew to $12,137,000 in
the first three months of 1996, which was 21.8% above comparable
1995 revenues. Service contract revenues were $12,956,000 for
the three month period ending March 31, 1996, or 5.0% above
comparable revenues reported in 1995.
The company's gross profit margin increased from 39.1% in the
first quarter of 1995 to 39.9% in the first quarter of 1996,
primarily resulting from continued growth in the company's
plumbing gross profit margin.
Page 7 of 11
Selling, general and administrative expenses increased from
25.8% of sales for the three months ended March 31, 1995 to 27.0%
for the three months ended March 31, 1996, primarily as a result
of higher wages and advertising costs as a percent of sales.
Higher wages primarily resulted from the company continuing its
optisizing strategy in its Atlanta and New York markets. Roto-Rooter's
operating profit margin for the first quarter of 1996 was 8.8% which
compares with 8.9% during the first quarter of 1995.
Other Income--Net increased from $365,000 for the three
months ended March 31, 1995 to $546,000 for the three months
ended March 31, 1996, primarily as a result of an increase in the
company's interest-earning cash reserves, offset partially by a
decline in the interest rate received on these reserves during
the first quarter of 1996 as compared with the first quarter of
1995. As a result of good cost management and higher interest
earnings during the first quarter of 1996, the company's pretax
margin increased to 9.5% of sales for the three months ended
March 31, 1996, or 0.2 percentage points above the 9.3% pretax
margin reported for the first three months of 1995.
The company's effective income tax rate declined from 43.0%
for the three months ended March 31, 1995 to 42.3% for the three
months ended March 31, 1996, primarily as a result of lower non-
deductible intangibles amortization in 1996 as compared with
1995.
Net income for the first quarter of 1996 was $2,559,000, a
13.7% increase over the $2,251,000 reported in the comparable
1995 quarter. Earnings per share for the first quarter of 1996
were $.50, or 13.6% above the prior year first quarter earnings
per share of $.44.
Page 8 of 11
PART II -- OTHER INFORMATION
----------------------------
Item 1. Legal Procedings
In 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. This
case has been transferred to U.S. District Court for the
Southern District of Iowa in Des Moines. Additional information
about this lawsuit can be found on page 18 of Roto-Rooter's
Annual Report on Form 10-K for the year ended December 31, 1995.
No significant change in the status of this lawsuit occurred during
the first quarter of 1996.
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 March 31, 1996.
Page 9 of 11
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: May 7, 1996 By: W.R. Griffin
---------------------- -------------------------
W.R. Griffin
President
Dated: May 7, 1996 By: B.A. Brumm
---------------------- -------------------------
B.A. Brumm
Vice President - Treasurer
and Chief Financial Officer
(Principal Accounting Officer)
Page 10 of 11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1996 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 18,196
<SECURITIES> 0
<RECEIVABLES> 7,769
<ALLOWANCES> (1,072)
<INVENTORY> 8,136
<CURRENT-ASSETS> 58,085
<PP&E> 44,585
<DEPRECIATION> (19,745)
<TOTAL-ASSETS> 153,380
<CURRENT-LIABILITIES> 60,402
<BONDS> 0
0
0
<COMMON> 5,445
<OTHER-SE> 71,659
<TOTAL-LIABILITY-AND-EQUITY> 153,380
<SALES> 0
<TOTAL-REVENUES> 47,783
<CGS> 0
<TOTAL-COSTS> 43,584
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (217)
<INCOME-PRETAX> 4,528
<INCOME-TAX> 1,917
<INCOME-CONTINUING> 2,559
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,559
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
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
March 31,
-------------------
1996 1995
-------- -------
<S> <C> <C>
Computation of Earnings Per
Common Share and Common
Equivalent Share:
- ---------------------------
Net Income $ 2,559 $2,251
======= =======
Average Number of Shares Used
to Compute Earnings
per Common Share 5,144 5,081
Effect of Unexercised
Stock Options 51 33
------- -------
Average Number of Shares Used
to Compute Earnings per
Common and Common
Equivalent Share 5,195 5,114
======= =======
Earnings per Common and
Common Equivalent Share $ .49 $ .44
======= =======
Computation of Earnings
Per Common Share Assuming
Full Dilution:
- ---------------------------
Net Income $ 2,559 $2,251
======= =======
Average Number of Shares
Used to Compute Earnings
per Common Share 5,144 5,081
Effect of Unexercised
Stock Options 51 46
------- -------
Average Number of Shares
Used to Compute Earnings
per Common Share Assuming
Full Dilution 5,195 5,127
======= =======
Earnings per Common Share
Assuming Full Dilution $ .49 $ .44
======= =======
</TABLE>
- ------------------
<F1>
(a) This calculation is submitted in accordance with Regulation S-K,
Item 601(b)(11), although not required by APB Opinion No. 15
because it results in dilution of less than 3%, including fractional
cents per share.
E - 1
Page 11 of 11
