Reported Restated
For the three months ended -------- --------
June 30, 2003:
------------------
Selling and marketing expenses $ 11,339 $ 10,558
Income taxes (1,594) (1,868)
Income from continuing operations 2,792 3,300
Net income 2,792 3,300
Earnings per share-
Income from continuing operations .28 .33
Net income .28 .33
Diluted earnings per share-
Income from continuing operations .28 .33
Net income .28 .33
For the six months ended
June 30, 2003:
------------------
Selling and marketing expenses $ 22,417 $ 20,091
Income taxes (3,336) (4,150)
Income from continuing operations 5,345 6,857
Net income 5,345 6,857
Earnings per share-
Income from continuing operations .54 .69
Net income .54 .69
Diluted earnings per share-
Income from continuing operations .54 .69
Net income .54 .69
Page 9 of 25
Reported Restated
For the three months ended --------- --------
June 30, 2002:
-----------------
Selling and marketing expenses $ 10,788 $ 10,158
Income taxes (2,150) (2,370)
Income from continuing operations 3,445 3,855
Net income 4,569 4,979
Earnings per share-
Income from continuing operations .35 .39
Net income .46 .51
Diluted earnings per share-
Income from continuing operations .35 .39
Net income .46 .50
For the six months ended
June 30, 2002:
-------------------
Selling and marketing expenses $ 22,781 $ 20,764
Income taxes (4,097) (4,802)
Income from continuing operations 7,250 8,562
Net income 9,241 10,553
Earnings per share-
Income from continuing operations .74 .87
Net income .94 1.07
Diluted earnings per share-
Income from continuing operations .73 .87
Net income .93 1.07
4. During the second quarter of 2003, the administrative functions for
employee benefits, retirement services, risk management, public
relations, cash management and taxation of the corporate office and the
Plumbing and Drain Cleaning business were combined to enable the Company
to benefit from economies of scale. In May 2003 the shareholders of the
Company approved changing the corporation's name from Chemed Corporation
to Roto-Rooter Inc. Due to these changes and the changing composition of
businesses comprising the Company over the past several years,
management re-evaluated the Company's segment reporting as it relates to
corporate office administrative expenses. The discontinuance of
businesses in 1997 (Omnia Group and National Sanitary Supply), 2001
(Cadre Computer) and 2002 (Patient Care), results in more than 80% of
the Company's business represented by Roto-Rooter's Plumbing and Drain
Cleaning business.
To better reflect how executive management evaluates its operations, the
costs of the administrative functions of the corporate office have been
combined with the operating results of the Plumbing and Drain Cleaning
business (formerly the Roto-Rooter Group) to form the Plumbing and Drain
Cleaning segment. The Service America segment remains essentially
unchanged. Data for the former Roto-Rooter Group and corporate office
overhead for all prior periods have been restated for comparability
purposes.
As in the past, unallocated investing and financing income and expense
includes interest income and expense, dividend income and other
nonoperating income and expense related to unallocated corporate assets
and liabilities.
Page 10 of 25
Service revenues and sales and aftertax earnings by business segment
follow (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2003 2002 2003 2002
-------- -------- -------- --------
Service Revenues and Sales
- --------------------------
Plumbing and Drain Cleaning $ 64,592 $ 63,095 $ 129,317 $ 128,374
Service America 12,679 15,987 25,599 31,561
-------- -------- --------- ---------
Total $ 77,271 $ 79,082 $ 154,916 $ 159,935
======== ======== ========= =========
Aftertax Earnings
- -----------------
(as restated-see Note 3)
Plumbing and Drain Cleaning $ 2,954 $ 3,617 $ 3,978(a) $ 7,026
Service America 35 59 75 386
-------- -------- --------- ---------
Total Segment Earnings 2,989 3,676 4,053 7,412
Unallocated Investing and
Financing - Net 311 179 2,804(b) 1,150(c)
-------- -------- --------- ---------
Income from Continuing
Operations 3,300 3,855 6,857 8,562
Discontinued Operations - 1,124 - 1,991
-------- -------- --------- ---------
Net Income $ 3,300 $ 4,979 $ 6,857 $ 10,553
======== ======== ========= =========
- --------------------------
(a) Amount includes aftertax severance charges of $2,358,000 ($.24 per
share).
(b) Amount includes aftertax capital gain on the sales of investments of
$2,151,000 ($.22 per share) in the first quarter of 2003.
(c) Amount includes aftertax capital gain on sales of investments of
$775,000 ($.08 per share) in the first quarter of 2002.
5. Other income--net from continuing operations comprises the following
(in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2003 2002 2003 2002
------ ------- ------ ------
Market value adjustments
on trading investments of
deferred compensation trusts $1,217 $ (13) $ 565 $ (84)
Interest income 703 619 1,518 1,255
Dividend income 607 616 1,223 1,231
Gains on sales of
available-for-sale investments - - 3,544 1,141
Other (72) (269) (133) (1)
------ ------- ------ ------
Total $2,455 $ 953 $6,717 $3,542
====== ======= ====== ======
6. In March 2003, the Company and a corporate officer reached agreement
providing for termination of the officer's employment in exchange for
payment under her employment contract. The contractual payments
comprise a $1,000,000 lump sum payment made in March 2003 and monthly
payments of $52,788 beginning March 2003 and ending May 2007. The
present value of these payments ($3,627,000) is included in general and
administrative expenses.
Page 11 of 25
7. Earnings per common share are computed using the weighted average
number of shares of capital stock outstanding. Diluted earnings per
common share are computed below (as restated - see Note 3) (in
thousands except per share data):
Income Shares Income
(Numerator) (Denominator) Per Share
Income from Continuing Operations - ----------- ------------- ---------
For the Three Months Ended June 30,
---------------------------------------
2003
Earnings $ 3,300 9,908 $ .33
=======
Dilutive stock options - 34
---------- ----------
Diluted earning $ 3,300 9,942 $ .33
========== ========== =======
2002
Earnings $ 3,855 9,857 $ .39
=======
Dilutive stock options - 41
---------- ----------
Diluted earning $ 3,855 9,898 $ .39
========== ========== =======
Net Income -
For the Three Months Ended June 30,
---------------------------------------
2003
Earnings $ 3,300 9,908 $ .33
=======
Dilutive stock options - 34
---------- ----------
Diluted earning $ 3,300 9,942 $ .33
========== ========== =======
2002
Earnings $ 4,979 9,857 $ .51
=======
Dilutive stock options - 41
---------- ----------
Diluted earning $ 4,979 9,898 $ .50
========== ========== =======
Income from Continuing Operations -
For the Six Months Ended June 30,
-------------------------------------
2003
Earnings $ 6,857 9,899 $ .69
=======
Dilutive stock options - 23
---------- ----------
Diluted earning $ 6,857 9,922 $ .69
========== ========== =======
2002
Earnings $ 8,562 9,850 $ .87
=======
Dilutive stock options - 41
---------- ----------
Diluted earning $ 8,562 9,891 $ .87
========== ========== =======
Net Income -
For the Six Months Ended June 30,
-------------------------------------
2003
Earnings $ 6,857 9,899 $ .69
=======
Dilutive stock options - 23
---------- ----------
Diluted earning $ 6,857 9,922 $ .69
========== ========== =======
2002
Earnings $ 10,553 9,850 $ 1.07
=======
Dilutive stock options - 41
---------- ----------
Diluted earning $ 10,553 9,891 $ 1.07
========== ========== =======
The impact of the convertible preferred securities has been excluded
from the above computations because it is antidilutive on earnings per
share from continuing operations for all periods presented.
8. The Company's total comprehensive income was (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
2003 2002 2003 2002
------- ------- ------- -------
Total Comprehensive
Income $ 3,323 $ 4,882 $ 4,389 $10,544
======= ======= ======= =======
The difference between the Company's net income and comprehensive
income is the unrealized appreciation or depreciation on its available-
for-sale securities.
Page 12 of 25
9. During 2003, three purchase business combinations were completed within
the Plumbing and Drain Cleaning segment for an aggregate purchase price
of $1,944,000 ($1,538,000 in cash and a note payable for $406,000). The
businesses acquired provide drain cleaning and plumbing services under
the Roto-Rooter name. The results of operations of these businesses are
not material to the results of operations of the Company.
The purchase prices were allocated as follows (in thousands):
Goodwill $ 1,793
Other 151
-------
Total purchase price 1,944
Less: Note payable (406)
-------
Cash outlay $ 1,538
=======
10. In the normal course of business the Company enters into various
guarantees and indemnifications in its relationships with customers and
others. Examples of these arrangements include guarantees of service
and product performance. The Company's experience indicates guarantees
and indemnifications do not materially impact the Company's financial
condition or results of operations.
11. In August 2001, the Financial Accounting Standards Board ("FASB")
approved the issuance of Statement of Financial Accounting Standards
("SFAS")No. 143, Accounting for Asset Retirement Obligations. This
statement became effective for fiscal years beginning after June 15,
2002, and requires recognizing legal obligations associated with the
retirement of tangible long-lived assets that result from the
acquisition, construction, development or normal operation of a
long-lived asset. Since the Company has no material asset retirement
obligations, the adoption of SFAS No. 143 in 2003 did not have a
material impact on Roto-Rooter, Inc.'s financial statements.
12. In July 2002, the FASB approved the issuance of SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities.
Generally, SFAS No. 146 stipulates that defined exit costs (including
restructuring and employee termination costs) are to be recorded on an
incurred basis rather than on a commitment basis, as previously
required. This statement is effective for exit or disposal activities
initiated after December 31, 2002. The adoption of SFAS No. 146 in
2003 did not have a material impact on Roto-Rooter, Inc.'s financial
statements.
13. In November 2002, the FASB approved the issuance of FASB Interpretation
("FIN") No. 45, Guarantor's Accounting and Disclosure for Guarantees,
Including Indirect Guarantees of Indebtedness of Others. The initial
recognition and initial measurement provisions of the Interpretation
are applicable to guarantees issued or modified after December 31, 2002.
The adoption of FIN No. 45 in 2003 did not have a material impact on
Roto-Rooter, Inc.'s financial statements.
Page 13 of 25
14. In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation--Transition and Disclosure. It is effective for
annual periods ending, and for interim periods beginning, after December
15, 2002. Because the Company uses Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees, to account for
stock-based compensation, the adoption of SFAS No. 148 in 2003 did not
have a material impact on Roto-Rooter, Inc.'s financial statements.
15. In January 2003, the FASB approved the issuance of FIN No. 46,
Consolidation of Variable Interest Entities. It is effective for
variable interest entities created after January 31, 2003, and for
variable interest entities in which an enterprise obtains an interest
after that date. The adoption of this statement did not have a material
impact on the Company's financial statements.
16. In May 2003, the FASB approved the issuance of SFAS No. 150, Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity. As a result of the issuance of this
pronouncement, the Company now reports the mandatorily redeemable
convertible preferred securities of the Chemed Capital Trust as a
noncurrent liability rather than in the "mezzanine" (i.e., between
liabilities and equity) as reported previously. This reclassification
does not affect the Company's compliance with its debt covenants. The
adoption of this statement did not impact the statement of income.
17. On August 7, 2003, Vitas Healthcare Corporation ("Vitas") gave notice
that it will retire the Company's investment in the 9% Redeemable
Preferred Stock Of Vitas on August 18, 2003. Cash proceeds to the
Company will total $27.3 million and the Company will realize a pretax
gain of approximately $1.8 million in the third quarter of 2003. During
2003, the dividends on this investment contributed $628,000 per quarter
to the aftertax earnings of the Company. Dividends will cease to accrue
on August 17, 2003.
The Company holds three warrants for the purchase of up to approximately
48% of the outstanding common stock of Vitas. The Board of Directors of
the Company recently authorized the exercise of all or a portion of
these warrants.
Page 14 of 25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The decline in other investments from $37,326,000 at December 31, 2002
to $32,789,000 at June 30, 2003 is due to the sales of investments during the
first quarter of 2003. The decline in other current liabilities from $23,513,000
at December 31, 2002 to $19,631,000 at June 30, 2003 is primarily due to the
payment in the first quarter of 2003 of incentive compensation and discretionary
thrift plan contributions for 2002 and accrued advertising expenses. There are
no other significant changes in the balance sheet accounts during the first six
months of 2003.
At June 30, 2003, Roto-Rooter, Inc. had approximately $98.6 million of lines of
credit with various banks. Management believes its liquidity and sources of
capital are satisfactory for the Company's needs in the foreseeable future.
RESULTS OF OPERATIONS
SECOND QUARTER 2003 VERSUS SECOND QUARTER 2002-CONSOLIDATED RESULTS
The Company's service revenues and sales for the second quarter of 2003
declined 2% versus revenues for the second quarter of 2002. This $1.8 million
decline was attributable to the following (dollar amounts in thousands):
Increase/(Decrease)
--------------------------
Amount Percent
-------- ---------
Service America
Service contracts $(2,312) (20.0)%
Demand services (996) (22.5)
Plumbing and Drain Cleaning
Plumbing 807 3.3
Drain cleaning (388) (1.5)
Other 1,078 9.0
--------
Total $(1,811) (2.3)
========
The decline in Service America's service contract revenues is
attributable to selling insufficient new service contracts to replace contracts
canceled or not renewed. The annualized value of contracts in place during the
second quarter of 2003 was 20% lower than the 2002 quarter. As revenues from
demand services are largely dependent upon service contract customers, the
decline in service contracts in place was largely responsible for the decline in
demand services in 2003.
The increase in plumbing revenues for the second quarter of 2003 versus
2002 comprises a 1.8% increase in the number of jobs performed, and a 1.5%
increase in the average price per job. The decline in drain cleaning revenues
for the second quarter of 2003 versus 2002 comprised a 4.0% decrease in the
number of jobs partially offset by a 2.5% increase in the average price per job.
The increase in other revenues for the second quarter of 2003 versus 2002 is
attributable to increases in product sales, industrial and municipal sales and
license revenues from contractor operations.
Page 15 of 25
The consolidated gross margin was 41% in the second quarters of 2003 and
2002. On a segment basis, the Plumbing and Drain Cleaning segment's gross margin
declined 1.2% points, primarily due to increased labor costs. Service America's
gross margin increased 1.0% points due to reduced labor costs as a result of
recent reductions in service technician headcount.
General and administrative expenses for the second quarter of 2003 were
$14,532,000, an increase of $2,024,000 (16.2%) versus the second quarter of
2002. Of this increase, $1,230,000 was attributable to market gains on assets of
deferred compensation trusts in the second quarter of 2003 versus a small loss
in such assets in 2002 (all within the Plumbing and Drain Cleaning segment).
These gains and losses are included in other income with an equivalent charge or
credit to general and administrative expenses for the change in the related
deferred compensation liability. The remainder of the increase is primarily
attributable to higher expenses in the Plumbing and Drain cleaning segment as
the result of higher legal expenses during the 2003 quarter and normal salary
and wage increases during 2003.
Selling and marketing expenses for the second quarter of 2003 were
$10,558,000, an increase of $400,000 (3.9%) versus the second quarter of 2002.
Selling and marketing expenses of the Plumbing and Drain Cleaning segment
increased $788,000 (9.3%) in the 2003 quarter, largely as the result of higher
expenses (primarily wages and benefits) for centralized call centers. For
Service America, selling and marketing expenses declined $388,000 (23.6%) in
2003, primarily as the result of the reduction in the number of employees.
Depreciation expense for the second quarter of 2003 declined $496,000
(14.2%) from $3,486,000 in the second quarter of 2002 to $2,990,000 in the 2003
quarter. $248,000 of this decline relates to the Service America segment and
$248,000 relates to the Plumbing and Drain Cleaning segment. Both reductions
were primarily attributable to reduced depreciation on service vehicles,
resulting from recent declines in capital outlays.
Income from operations declined $2,726,000 (43.2%) from $6,306,000 in
the second quarter of 2002 to $3,580,000 in the second quarter of 2003.
Substantially all of this decline occurred within the Plumbing and Drain
Cleaning segment. Of this decline, $1,230,000 was attributable to the
aforementioned increase in deferred compensation expense (which is completely
offset in the "other income" line of the statement of income). Higher call
center expenses and higher legal fees in the 2003 quarter contributed
significantly to the decline in income from operations.
Interest expense, substantially all of which is classified as
Unallocated Investing and Financing-net, declined from $763,000 in the second
quarter of 2002 to $599,000 in the 2003 quarter. This decline is primarily
attributable to lower debt levels in 2003 as the result of using cash proceeds
from the sale of Patient Care late in 2002 to pay down the Company's revolving
line of credit.
Page 16 of 25
Other income increased $1,502,000 in the second quarter of 2003 versus
the second quarter of 2002. Most of this increase ($1,230,000) is attributable
to the aforementioned increase in market adjustments for assets held in deferred
compensation trusts in the 2003 quarter (which is entirely offset in the
"general and administrative expense" category of the statement of income).
The Company's effective income tax rate declined from 38.1% in the
second quarter of 2002 to 36.1% in the second quarter of 2003. This decline is
attributable to a lower effective state and local tax rate in the Plumbing and
Drain Cleaning segment and to a larger dividend exclusion (Unallocated Investing
and Financing-net) as a percent of pretax income in the 2003 quarter versus
2002.
Income from continuing operations for the second quarter declined
$555,000 from $3,855,000 ($.39 per share) in 2002 to $3,300,000 ($.33 per share)
in 2003. Most of this decline is attributable to lower earnings of the Plumbing
and Drain Cleaning Segment in 2003.
Net income for the second quarter declined $1,679,000 from $4,979,000
($.51 per share and $.50 per diluted share) in 2002 to $3,300,000 ($.33 per
share) in 2003. Net income for the 2002 quarter included $1,124,000 ($.12 per
share and $.11 per diluted share) from the operations of Patient Care sold in
October 2002.
SECOND QUARTER 2003 VERSUS SECOND QUARTER 2002-SEGMENT RESULTS
Data relating to the increase or decrease in service revenues and sales
and to aftertax earnings as a percent of sales for each segment are set forth
below:
Service Revenues Aftertax Earnings as a
and Sales Percent Percent of Revenues
Three Months Ended Increase/(Decrease) (Aftertax Margin)
----------------------
June 30, 2003 vs. 2002 2003 2002
------------------ ------------------ -------- --------
Plumbing and Drain Cleaning 2 % 4.6% 5.7%
Service America (21) 0.3 0.4
Total (2) 3.9 4.6
The change in aftertax earnings for the second quarter of 2003 versus
2002 is summarized below (in thousands):
Increase/
(Decrease)
----------
Service America $ (24)
Plumbing and Drain Cleaning (663)
Unallocated Investing and Financing-net 132
---------
Income from continuing operations $ (555)
=========
The decline in the aftertax earnings and the related decline in the aftertax
margin of the Plumbing and Drain Cleaning segment is primarily attributable to
higher labor costs, higher call center costs and higher legal expenses during
the 2003 quarter. The increase in Unallocated Investing and Financing-net is
attributable to interest income on the $12.5 million note receivable from the
sale of Patient Care in October 2002.
Page 17 of 25
SIX MONTHS 2003 VERSUS SIX MONTHS 2002 - CONSOLIDATED RESULTS
The Company's service revenues and sales for the first six months of
2003 declined 3% versus revenues for the first six months of 2002. This $5.0
million decline was attributable to the following (dollar amounts in thousands):
Increase/(Decrease)
Amount Percent
Service America --------- ----------
Service contracts $(4,313) (18.5)%
Demand services (1,649) (19.9)
Plumbing and Drain Cleaning
Plumbing 604 1.2
Drain cleaning (808) (1.5)
Other 1,147 4.6
--------
Total $(5,019) (3.1)
========
The decline in Service America's revenues is attributable to selling
insufficient new service contracts to replace contracts canceled or not renewed.
The annualized value of contracts in place during the first six months of 2003
was 19% lower than the 2002 period. The decline in service contracts in place
was largely responsible for the decline in demand services in 2003.
The increase in the plumbing revenues for the first six months of 2003
versus 2002 comprises a 1.9% increase in the number of jobs performed and a .7%
decline in the average price per job. The decline in drain cleaning revenues for
the first six months of 2003 versus 2002 comprise a 4.0% decrease in the number
of jobs partially offset by a 2.5% increase in the average price per job. The
increase in other revenues for the first six months of 2003 versus 2002 is
attributable to increases in industrial and municipal sales and contractor
operations.
The consolidated gross margin was 40.8% in the first six months of 2003
and 40.5% in the 2002 period. On a segment basis, the Plumbing and Drain
Cleaning segment's gross margin was essentially the same in both periods.
Service America's gross margin increased 1.1% points due to reduced labor costs
as a result of recent reductions in service technician headcount.
General and administrative expenses for the first six months of 2003
were $31,056,000, an increase of $5,894,000 (23.4%) versus the first six months
of 2002. Expenses for the 2003 period include a $3,627,000 charge from severance
for a corporate officer in 2003. In addition, $649,000 of this increase was
attributable to recording market gains on assets of deferred compensation trusts
in the first six months of 2003 versus a small loss in such assets in 2002 (all
within the Plumbing and Drain Cleaning segment). These gains and losses are
included in other income with an equivalent charge or credit to general and
administrative expenses for the change in the related deferred compensation
liability. The remainder of the increase is primarily attributable to higher
expenses in the Plumbing and Drain Cleaning segment as the result of higher
legal expenses during the 2003 period and normal salary and wage increases
during 2003.
Page 18 of 25
Selling and marketing expenses for the first six months of 2003 were
$20,091,000, a decline of $673,000 (3.2%) versus the first six months of 2002.
Selling and marketing expenses of the Plumbing and Drain Cleaning segment
increased $214,000, 1.2% in the 2003 period. For Service America selling and
marketing expenses declined $887,000 (26.5%) in 2003, primarily as the result of
the reduction in the number of employees.
Depreciation expense for the first six months of 2003 declined $936,000
(13.4%) from $6,978,000 in the first six months of 2002 to $6,042,000 in the
2003 period. Of this decline, $458,000 relates to the Service America segment
and $478,000 relates to the Plumbing and Drain Cleaning segment. Both reductions
were primarily attributable to reduced depreciation on service vehicles,
resulting from recent declines in capital outlays.
Income from operations declined $5,935,000 (49.9%) from $11,899,000 in
the first six months of 2002 to $5,964,000 in the first six months of 2003. Most
of this decline occurred within the Plumbing and Drain Cleaning segment. The
previously mentioned severance charge in the first quarter of 2003 accounted for
$3,627,000 of the decline while $649,000 of the decline was attributable to the
increase in deferred compensation expense (which is completely offset in the
"other income" line of the statement of income). Higher call center expenses and
higher legal fees in the 2003 period also contributed to the decline in income
from operations.
Interest expense, substantially all of which is classified as
Unallocated Investing and Financing-net, declined from $1,536,000 in the first
six months of 2002 to $1,138,000 in the 2003 period. This is primarily
attributable to lower debt levels in 2003 as the result of using cash proceeds
from the sale of Patient Care in 2002 to pay down the Company's revolving line
of credit.
Other income increased $3,175,000 in the first six months of 2003 versus
the first six months of 2002. This increase is primarily attributable to larger
capital gains on the sales of investments ($3,544,000 in the first six months of
2003 versus $1,141,000 in 2002) and the aforementioned increase in market
adjustments for assets held in deferred compensation trusts ($649,000) in the
2003 period (which is entirely offset in the "general and administrative
expense" category of the statement of income).
The Company's effective income tax rate increased from 35.9% in the
first six months of 2002 to 37.7% in the first six months of 2003. This is
primarily attributable to the lack of a state income tax benefit on the
severance charges incurred in 2003.
Income from continuing operations for the first six months declined
$1,705,000 from $8,562,000 ($.87 per share) in 2002 to $6,857,000 ($.69 per
share) in 2003. Earnings for the first six months of 2003 included an aftertax
severance charge of $2,358,000 ($.24 per share) and aftertax capital gains on
the sales of investments of $2,151,000 ($.22 per share). Earnings for 2002
included capital gains on the sales of investments of $775,000 ($.08 per share).
Page 19 of 25
Net income for the first six months declined $3,696,000 from $10,553,000
($1.07 per share) in 2002 to $6,857,000 ($.69 per share) in 2003. Net income for
the 2002 period included $1,991,000 ($.20 per share) from the operations of
Patient Care sold in October 2002.
SIX MONTHS 2003 VERSUS SIX MONTHS 2002 - SEGMENT RESULTS
Data relating to the increase or decrease in service revenues and sales
and to aftertax earnings as a percent of sales for each segment are set forth
below:
Service Revenues Aftertax Earnings as a
and Sales Percent Percent of Revenues
Six Months Ended Increase/(Decrease) (Aftertax Margin)
----------------------
June 30, 2003 vs. 2002 2003 2002
------------------ ------------------ -------- --------
Plumbing and Drain Cleaning 1 % 3.1% 5.5%
Service America (19) 0.3 1.2
Total (3) 2.6 4.6
The change in aftertax earnings for the first six months of 2003
versus 2002 is summarized below (in thousands):
Increase/
(Decrease)
----------
Service America $ (311)
Plumbing and Drain Cleaning (3,048)
Unallocated Investing and Financing-net 1,654
---------
Income from continuing operations $ (1,705)
=========
The decline in the aftertax earnings of Service America during the first six
months of 2003 versus 2002 is attributable largely to the negative impact of
leverage (relatively fixed general and administrative expenses during a period
of declining revenues). The decline in the aftertax earnings and the related
decline in the aftertax margin of the Plumbing and Drain Cleaning segment is
primarily attributable to a severance charge incurred in the first quarter of
2003 for a corporate officer ($2,358,000). The remainder of the decline in this
segment's earnings is attributable to higher call center costs and higher legal
expenses during the 2003 period. The increase in Unallocated Investing and
Financing income/expense is attributable to larger aftertax capital gains in the
2003 period ($2,151,000 in 2003 versus $775,000 in 2002) and to interest income
on the $12.5 million note receivable from the sale of Patient Care in October
2002 ($322,000).
RECENT ACCOUNTING STATEMENTS
In August 2001, the Financial Accounting Standards Board ("FASB")
approved the issuance of Statement of Financial Accounting Standards ("SFAS")No.
143, Accounting for Asset Retirement Obligations. This statement became
effective for fiscal years beginning after June 15, 2002, and requires
recognizing legal obligations associated with the retirement of tangible
long-lived assets that result from the acquisition, construction, development
Page 20 of 25
or normal operation of a long-lived asset. Since the Company has no
material asset retirement obligations, the adoption of SFAS No. 143 in 2003 did
not have a material impact on Roto-Rooter, Inc.'s financial statements.
In July 2002, the FASB approved the issuance of SFAS No. 146, Accounting
for Costs Associated with Exit or Disposal Activities. Generally, SFAS No. 146
stipulates that defined exit costs (including restructuring and employee
termination costs) are to be recorded on an incurred basis rather than on a
commitment basis, as previously required. This statement is effective for exit
or disposal activities initiated after December 31, 2002. The adoption of SFAS
No. 146 in 2003 did not have a material impact on Roto-Rooter, Inc.'s financial
statements.
In November 2002, the FASB approved the issuance of FASB interpretation
("FIN") No. 45, Guarantor's Accounting and Disclosure for Guarantees, Including
Indirect Guarantees of Indebtedness of Others. The initial recognition and
initial measurement provisions of the Interpretation are applicable to
guarantees issued or modified after December 31, 2002. The adoption of FIN No.
45 in 2003 did not have a material impact on Roto-Rooter, Inc.'s financial
statements.
In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation--Transition and Disclosure. It is effective for annual
periods ending, and for interim periods beginning, after December 15, 2002.
Because the Company uses Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, to account for stock-based compensation, the
adoption of SFAS No. 148 in 2003 did not have a material impact on Roto-Rooter,
Inc.'s financial statements.
In January 2003, the FASB approved the issuance of FIN No. 46,
Consolidation of Variable Interest Entities. It is effective for variable
interest entities created after January 31, 2003, and for variable interest
entities in which an enterprise obtains an interest after that date. The
adoption of this statement did not have a material impact on the Company's
financial statements.
In May 2003, the FASB approved the issuance of SFAS No. 150, Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity. As a result of the issuance of this pronouncement, the Company now
reports the mandatorily redeemable convertible preferred securities of the
Chemed Capital Trust as a noncurrent liability rather than in the "mezzanine"
(i.e., between liabilities and equity) as reported previously. This
reclassification does not affect the Company's compliance with its debt
covenants. The adoption of this statement did not impact the statement of
income.
Page 21 of 25
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 REGARDING FORWARD-LOOKING INFORMATION
In addition to historical information, this report contains
forward-looking statements and performance trends that are based upon
assumptions subject to certain known and unknown risks, uncertainties,
contingencies and other factors. Variances in any or all of the risks,
uncertainties, contingencies, and other factors from the Company's assumptions
could cause actual results to differ materially from these forward-looking
statements and trends. The Company's ability to deal with the unknown outcomes
of these events, many of which are beyond the control of the Company, may affect
the reliability of its projections and other financial matters.
ITEM 4. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed in the Company's
Exchange Act reports is recorded, processed, summarized and reported within the
time periods specified in the SEC's rules and forms, and that such information
is accumulated and communicated to the Company's management to allow timely
decisions regarding required disclosure.
The Company recently carried out an evaluation, under the supervision of
the Company's President and Chief Executive Officer, and with the participation
of the Executive Vice President and Treasurer and the Vice President and
Controller, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Exchange Act Rules
13a-14/15d-14(a). Based upon the foregoing, the Company's President and Chief
Executive Officer, Executive Vice President and Treasurer and Vice President and
Controller concluded that as of the date of this report the Company's disclosure
controls and procedures are effective in timely alerting them to material
information relating to the Company and its consolidated subsidiaries required
to be included in the Company's Exchange Act reports. There have been no
significant changes in internal control over financial reporting during the
quarter ended June 30, 2003.
Page 22 of 25
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Roto-Rooter, Inc. held its annual meeting of stockholders on May 19,
2003.
(b) The names of directors elected at this annual meeting are as follows:
Edward L. Hutton Sandra E. Laney
Kevin J. McNamara Timothy S. O'Toole
Charles H. Erhart, Jr. Donald E. Saunders
Joel F. Gemunder George J. Walsh III
Patrick P. Grace Frank E. Wood
Thomas C. Hutton
(c) The stockholders ratified the selection by the Audit Committee of the
Board of Directors of PricewaterhouseCoopers LLP as independent
accountants for the Company and its consolidated subsidiaries for the
year 2003: 9,212,452 votes were cast in favor of the proposal, 148,890
votes were cast against it, 25,299 votes abstained, and there were no
broker non-votes.
(d) The stockholders then voted on the approval and adoption of an amendment
to the Certificate of Incorporation changing the Company's name to
Roto-Rooter, Inc.: 9,314,899 votes were cast in favor of the proposal,
51,156 votes were cast against it, 20,586 votes abstained, and there
were no broker non-votes.
With respect to the election of directors, the number of votes cast for
each nominee was as follows:
FOR AGAINST
--------- ---------
Edward L. Hutton 8,085,483 1,301,158
Kevin J. McNamara 8,100,177 1,286,464
Charles H. Erhart, Jr. 8,157,616 1,229,025
Joel F. Gemunder 8,100,419 1,286,223
Patrick P. Grace 8,159,965 1,226,676
Thomas C. Hutton 8,095,422 1,291,219
Sandra E. Laney 7,843,740 1,542,901
Timothy S. O'Toole 8,103,108 1,283,533
Donald E. Saunders 8,090,958 1,295,683
George J. Walsh, III 8,169,375 1,217,266
Frank E. Wood 8,165,849 1,220,792
Page 23 of 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
--------
Exhibit No. Description
----------- -----------
31.1 Certification by Kevin J. McNamara pursuant
to Rule 13A - 14 of the Exchange Act of
1934.
31.2 Certification by Timothy S. O'Toole pursuant
to Rule 13A - 14 of the Exchange Act of
1934.
31.3 Certification by Arthur V. Tucker, Jr.
pursuant to Rule 13A - 14 of the Exchange
Act of 1934.
32.1 Certification by Kevin J. McNamara pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification by Timothy S. O'Toole pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002.
32.3 Certification by Arthur V. Tucker, Jr.
pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002.
(b) Reports on Form 8-K
-------------------
- A Current Report on Form 8-K, dated May 19, 2003, was
filed May 21, 2003. The report includes the Company's
announcement of changing its name from Chemed
Corporation to Roto-Rooter, Inc.
- A Current Report on Form 8-K, dated July 17, 2003,
was filed July 21, 2003. The report includes the
Company's earnings announcement for the second
quarter.
- An Amended Current Report on Form 8-K/A, dated July
17, 2003, was filed July 21, 2003. The report
includes the Company's earnings announcement
(including a properly formatted balance sheet) for
the second quarter.
Page 24 of 25
SIGNATURES
Pursuant to the requirements of the Securities and 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: December 17, 2003 By /s/ Kevin J. McNamara
----------------- -------------------------
Kevin J. McNamara
(President and Chief
Executive Officer)
Dated: December 17, 2003 By /s/ Timothy S. O'Toole
----------------- -------------------------
Timothy S. O'Toole
(Executive Vice President
and Treasurer)
Dated: December 17, 2003 By /s/ Arthur V. Tucker, Jr.
----------------- -------------------------
Arthur V. Tucker, Jr.
(Vice President and
Controller)
Page 25 of 25
EXHIBIT 31.1
CERTIFICATION PURSUANT TO RULES 13a-14(a)/15d-14(a) OF THE EXCHANGE ACT OF 1934
I, Kevin J. McNamara, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Roto-Rooter,
Inc. ("registrant");
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations, and
cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rule
13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) designed such internal control over financial reporting, or
caused such internal control over financial report to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
E - 1
c) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors:
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: December 17, 2003 /s/ Kevin J. McNamara
----------------- -----------------------
Kevin J. McNamara
(President and Chief
Executive Officer)
E - 2
EXHIBIT 31.2
CERTIFICATION PURSUANT TO RULES 13a-14(a)/15d-14(a) OF THE EXCHANGE ACT OF 1934
I, Timothy S. O'Toole, certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Roto-Rooter,
Inc. ("registrant");
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations, and
cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rule
13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) designed such internal control over financial reporting, or
caused such internal control over financial report to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
E - 3
c) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors:
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: December 17, 2003 /s/ Timothy S. O'Toole
----------------- -----------------------
Timothy S. O'Toole
(Executive Vice President
and Treasurer)
E - 4
EXHIBIT 31.3
CERTIFICATION PURSUANT TO RULES 13a-14(a)/15d-14(a) OF THE EXCHANGE ACT OF 1934
I, Arthur V. Tucker, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q/A of Roto-Rooter,
Inc. ("registrant");
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations, and
cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange Act Rule
13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) designed such internal control over financial reporting, or
caused such internal control over financial report to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
E - 5
c) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors:
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: December 17, 2003 /s/ Arthur V. Tucker, Jr.
----------------- -------------------------
Arthur V. Tucker, Jr.
(Vice President and
Controller)
E - 6
EXHIBIT 32.1
CERTIFICATION BY KEVIN J. MCNAMARA
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as
President and Chief Executive Officer of Roto-Rooter, Inc. ("Company"), does
hereby certify that:
1) the Company's Quarterly Report on Form 10-Q/A for the quarter
ending June 30, 2003 ("Report"), fully complies with the
requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
2) the information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
Dated: December 17, 2003 /s/ Kevin J. McNamara
----------------- -----------------------
Kevin J. McNamara
(President and Chief
Executive Officer)
E - 7
EXHIBIT 32.2
CERTIFICATION BY TIMOTHY S. O'TOOLE
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as
Executive Vice President and Treasurer of Roto-Rooter, Inc. ("Company"), does
hereby certify that:
1) the Company's Quarterly Report on Form 10-Q/A for the quarter
ending June 30, 2003 ("Report"), fully complies with the
requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
2) the information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
Dated: December 17, 2003 /s/ Timothy S. O'Toole
----------------- -----------------------
Timothy S. O'Toole
(Executive Vice President
and Treasurer)
E - 8
EXHIBIT 32.3
CERTIFICATION BY ARTHUR V. TUCKER, JR.
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned, as
Vice President and Controller of Roto-Rooter, Inc. ("Company"), does hereby
certify that:
1) the Company's Quarterly Report on Form 10-Q/A or the quarter
ending June 30, 2003 ("Report"), fully complies with the
requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
2) the information contained in the Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
Dated: December 17, 2003 /s/ Arthur V. Tucker, Jr.
----------------- --------------------------
Arthur V. Tucker, Jr.
(Vice President and
Controller)
E - 9
