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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
May 4, 2004
ROTO-ROOTER INC.
(Exact name of registrant as specified in its charter)
Delaware 1-8351 31-0791746
(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification
incorporation) Number)
2600 Chemed Center, 255 East 5th Street, Cincinnati, OH 45202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(513) 762-6900
Page 1 of 2
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits
c) Exhibits
(99.1) Registrant's press release dated May 4, 2004.
Item 12. Results of Operations and Financial Condition
On May 4, 2004, Roto-Rooter, Inc. issued a press release
announcing its financial results for the first quarter ended
March 31, 2004. A copy of the release is furnished herewith as
Exhibit 99.1 and incorporated by reference herein.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ROTO-ROOTER INC.
Dated: May 4, 2004 By: /s/ Arthur V. Tucker, Jr.
------------ --------------------------
Arthur V. Tucker, Jr.
Vice President and Controller
Page 2 of 2
Exhibit 99.1
Roto-Rooter Inc. Reports 2004 First-Quarter Results;
Consolidated Revenue Increases 69%, Record Average Daily Census at VITAS
CINCINNATI--(BUSINESS WIRE)--May 4, 2004--Roto-Rooter Inc. ("Roto-Rooter")
(NYSE:RRR) (OTCBB:CHEQP), which operates the nation's largest provider of
end-of-life care under the VITAS Healthcare Corporation (VITAS) brand and
commercial and residential plumbing and drain cleaning services under the
Roto-Rooter brand, today reported financial results for its first quarter, ended
March 31, 2004, versus the comparable prior-year period as follows:
-- Consolidated GAAP Operating Results:
-- Revenue increased 69% to $131.0 million
-- Adjusted EBITDA of $15.0 million
-- EPS loss including merger related expenses of $.65
-- Quarterly Pro Forma Consolidated Operating Results:
-- Pro forma Revenue increased 15% to $203.9 million
-- Pro forma Adjusted EBITDA of $20.9 million, an increase of
51%
-- Pro forma Earnings Per Share, excluding LTIP and debt
extinguishment, of $.46
-- VITAS generated record revenue and ADC levels:
-- Quarterly Net Patient Revenue up 24%
-- Average Daily Census (ADC) up 18%
-- Pro forma Adjusted EBITDA increased 48%
-- Plumbing and Drain Cleaning segment reported increased Revenue
and Adjusted EBITDA:
-- Revenue increased 7%
-- Adjusted EBITDA increased 35%
"The first quarter of 2004 was perhaps the most dynamic period in the
history of the company," said Kevin J. McNamara, Roto-Rooter president and chief
executive officer. "Over the past three months, we have successfully completed
our merger of VITAS, restructured the entire debt of the organization, issued
2,000,000 shares of Roto-Rooter Inc. capital stock in a private placement and,
at the same time, produced improved performance of both VITAS and the Plumbing
and Drain Cleaning segments of the business. We have basically reengineered the
entire structure, strategy, and direction of the company."
"The first quarter of 2004 contained a number of unusual items and issues
that need to be carefully considered in analyzing the fundamental strength of
the overall businesses," said David Williams, Roto-Rooter's chief financial
officer. "Issues in the first quarter of 2004 include VITAS' being accounted for
under the equity method of accounting until the date of the merger, February 24,
2004. After this point, VITAS' results of operations are fully consolidated into
Roto-Rooter Inc.'s financial results. In addition, losses on early
extinguishment of debt; legal, valuation, and other costs related to the merger;
required GAAP accrual of potential severance at VITAS; costs associated with a
Long-Term Incentive Plan (LTIP); as well as certain capital gains and severance
recorded in the first quarter of 2003, all impact the comparability of our
financial results. Further, the required GAAP treatment relating to the direct
expensing of advertising, primarily "Yellow Page" type telephone directories,
needs to be considered to adequately measure and compare the overall performance
of the plumbing and drain cleaning business. As a result, this press release
contains a number of reconciling schedules that detail out the impact of this
activity."
For a detailed presentation of reconciling items and related definitions
and components, please refer to the attached schedules.
VITAS
The merger of VITAS was completed on February 24, 2004. Prior to that date,
the company accounted for its 37% ownership of VITAS under the equity method of
accounting. As a result, under generally accepted accounting principles (GAAP),
only a portion of VITAS' operating results are fully consolidated into
Roto-Rooter Inc.'s first quarter of 2004.
Within Roto-Rooter Inc.'s GAAP financial statements, VITAS had Net Patient
Revenue of $51.1 million, Income from Operations of $4.5 million and Net Income
of $2.6 million in the first quarter of 2004. In addition, Roto-Rooter
recognized a loss of $4.1 million representing 37% of the aftertax loss
generated by VITAS from January 1, 2004, to February 24, 2004, under the equity
method of accounting.
For purposes of comparability, the results of VITAS will be discussed as if
this business segment was wholly owned as of January 1, 2003 and 2004 (Pro
forma). Pro forma Net Patient Revenue for the entire quarter was $124.0 million,
up 24% from $100.2 million in the first quarter of 2003. Pro forma Adjusted
EBITDA, after excluding $25.0 million of transaction expenses related to the
merger, totaled $11.4 million, which was 48% higher than the $7.7 million of Pro
forma Adjusted EBITDA generated in the prior-year quarter. It is also important
to note that a certain amount of seasonality exists within the hospice industry
that occurs between the fourth and first quarters, which impacts census. In
addition, a significant portion of VITAS' state and federal unemployment taxes
is expensed in the first quarter of a calendar year. These taxes unfavorably
impact margins by approximately one percentage point.
VITAS' Average Daily Census (ADC) in the first quarter of 2004 was 8,097.
This compares to an ADC of 6,878 in the comparable prior-year period, an
increase of 18%. Average Length of Stay (LOS) per patient was 55.7 days for the
quarter and compares to 54.1 days in the first quarter of 2003. The median LOS
was 11.0 days for both periods.
"We continue to see strong organic ADC growth across all levels of VITAS,"
said McNamara. "Our average ADC per program is in excess of 300 patients. In our
large programs, those with an Average Daily Census in excess of 450, ADC growth
was over 15% for the quarter. We also continue to see leverage on our Selling,
General and Administrative Expenses. In the first quarter of 2004, these
expenses were lowered to 10.9% of Net Patient Revenue. This compares to 11.6% of
Net Patient Revenue in the prior-year period."
"The past quarter has been extremely challenging for all of our employees
at VITAS," added McNamara. "In spite of significant distractions relating to the
merger, the entire VITAS team remains focused on providing the high level of
patient care we have become known for, consistently putting the patient's needs
first above all others. This dedication is proven in the continued growth in our
average daily census."
Plumbing and Drain Cleaning Business
Roto-Rooter's plumbing and drain cleaning business generated sales of $69.2
million for the first quarter of 2004, 7.0% higher than the $64.7 million
reported in the comparable prior-year quarter. Adjusted EBITDA in the first
quarter of 2004 totaled $8.7 million, an increase of 35% over the Adjusted
EBITDA of $6.5 million generated in the first quarter of 2003.
"There are several factors contributing to the improvement in the plumbing
and drain cleaning segment," stated McNamara. "We were able to successfully pass
through modest price increases in many of our markets over the past three
months. In addition, job count increased 1.1% in the first quarter of 2004. We
continue to see strengthening demand in the majority of our markets and,
specifically, increased demand in commercial and residential plumbing. Our
expense control at the field level resulted in a first quarter 2004 gross profit
margin of 44.6%, which is 0.9 percentage point above the first quarter of 2003."
Consolidated Financial Position
"Looking forward into 2004," Williams stated, "our cash position is very
solid. As of March 31, 2004, we have over $43.0 million in cash and $43.6
million of unused lines of credit under the New Credit Facility. In addition,
tax refunds in excess of $19 million relating to the deductibility of stock
option buyouts at the VITAS level should be received by the fourth quarter of
2004."
Roto-Rooter will hold a conference call to discuss first-quarter results
Tuesday May 11, 2004, at 11 a.m. EDT. The dial-in number for the conference call
is 800-945-0061 for U.S. and Canadian participants and 706-679-7146 for
international participants. A live webcast of the call can be accessed on
Roto-Rooter's website at www.rotorooterinc.com by clicking on Investor Relations
Home, going to "Featured Event: Web Cast -- Live," and then clicking on "Q1 2004
Roto-Rooter Inc. Conference Call."
A taped replay of the conference call will be available beginning
approximately two hours after the call's conclusion. It can be accessed by
dialing 800-642-1687 for U.S. and Canadian callers and 706-645-9291 for
international callers. The conference ID number is 6758350. An archived webcast
will also be available at www.rotorooterinc.com. Both the telephone and online
replays will remain available for 14 days following the live call.
Roto-Rooter Inc. operates in the healthcare field through its VITAS
Healthcare Corporation subsidiary. VITAS provides daily hospice services to over
8,000 patients with severe, life-limiting illnesses. This type of care is
focused on making the terminally ill patient's final days as comfortable and
pain-free as possible. Roto-Rooter Inc. operates in the residential and
commercial repair-and-maintenance-service industry under the brand names
Roto-Rooter and Service America. Roto-Rooter provides plumbing and drain service
through company-owned branches, independent contractors and franchisees in the
United States and Canada. Roto-Rooter also has licensed master franchisees in
China/Hong Kong, Indonesia, Singapore, Japan, Mexico, the Philippines, and the
United Kingdom. Operating in Florida and Arizona, Service America furnishes
residential and commercial appliance and heating and air conditioning repair and
maintenance services.
This press release contains information about Roto-Rooter's Adjusted
EBITDA, which is not a measure derived in accordance with generally accepted
accounting principles (GAAP), and which excludes components that are important
to understanding Roto-Rooter's financial performance. Roto-Rooter provides
Adjusted EBITDA to help investors and others evaluate its operating results,
compare its operating performance with that of similar companies that have
different capital structures and evaluate its ability to meet its future debt
service, capital expenditures and working capital requirements. Roto-Rooter's
Adjusted EBITDA should not be considered in isolation or as a substitute for
comparable measures calculated and presented in accordance with GAAP. A
reconciliation of Roto-Rooter's Net Income and Cash Flows from Operating,
Financing and Investing Activities to its Adjusted EBITDA is presented in the
tables following the text of this press release.
Forward-Looking Statements
Certain statements contained in this press release and the accompanying
tables are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The words "believe," "expect," "hope,"
"anticipate," "plan" and similar expressions identify forward-looking
statements, which speak only as of the date the statement was made. Roto-Rooter
does not undertake and specifically disclaims any obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. These statements are based on current
expectations and assumptions and involve various risks and uncertainties, which
could cause Roto-Rooter's actual results to differ from those expressed in such
forward-looking statements. These risks and uncertainties arise from, among
other things, possible changes in regulations governing the hospice care,
plumbing, drain cleaning, and HVAC industries; periodic changes in reimbursement
levels and procedures under Medicare and Medicaid programs; difficulties
predicting patient length of stay and estimating potential Medicare
reimbursement obligations; challenges inherent in Roto-Rooter's growth strategy;
the current shortage of qualified nurses, other healthcare professionals, and
licensed plumbing and drain cleaning technicians; Roto-Rooter's dependence on
patient referral sources; and other factors detailed under the caption
"Description of Business by Segment" or "Risk Factors" in Roto-Rooter's most
recent report on Form 10-Q or 10-K and its other filings with the Securities and
Exchange Commission. You are cautioned not to place undue reliance on such
forward-looking statements, and there are no assurances that the matters
contained in such statements will be achieved.
ROTO-ROOTER, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)(unaudited)
Three Months Ended
March 31,
-------------------------
2004 2003
--------- --------
Service revenues and sales $131,048 $77,645
--------- --------
Cost of services provided and goods
sold 86,224 46,152
Selling, general and administrative
expenses 31,023 26,057 (d)
Depreciation 3,589 3,052
Long-term incentive compensation 9,058 (a) -
--------- --------
Total costs and expenses 129,894 75,261
--------- --------
Income from operations 1,154 2,384
Interest expense (2,905) (807)
Loss on extinguishment of debt (3,330) (b) -
Other income--net 1,579 4,262 (c)
--------- --------
Income/(loss) before income taxes (3,502) (a,b) 5,839 (d,e)
Income taxes 497 (2,282)
Equity in loss of affiliate (Vitas) (4,105) (c) -
--------- --------
Net income/(loss) $ (7,110) (a,b,c)$ 3,557 (d,e)
========= ========
Earnings Per Share
Net income/(loss) $ (0.65) (a,b,c)$ 0.36 (d,e)
========= ========
Average number of shares outstanding 10,912 9,890
========= ========
Diluted Earnings Per Share
Net income/(loss) $ (0.65) (a,b,c)$ 0.36 (d,e)
========= ========
Average number of shares outstanding 10,912 9,903
========= ========
- ---------------------------------------
(a) Amounts include a pretax charge of $9,058,000 ($5,894,000 aftertax
or $.54 per share and $.54 per diluted share) for payouts under
the Company's 2002 Executive Long-Term Incentive Plan in the first
quarter of 2004.
(b) Amounts include a pretax charge of $3,330,000 ($2,164,000 aftertax
or $.20 per share) from the early extinguishment of debt in the
first quarter of 2004.
(c) Amounts include the Company's aftertax share of VITAS' charges
related to the Company's acquisition of VITAS in the first quarter
of 2004. These charges included VITAS' loss on extinguishment of
debt and transaction-related expenses that reduced the Company's
equity in the earnings/(loss) of VITAS by $4,621,000 ($.42 per
share).
(d) Amounts include a pretax charge of $3,627,000 ($2,358,000 aftertax
or $.24 per share) from severance charges in the first quarter of
2003.
(e) Amounts for the first quarter of 2003 include a pretax gain of
$3,544,000 ($2,151,000 aftertax or $.22 per share) from the sales
of investments.
ROTO-ROOTER, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)(unaudited)
March 31,
--------------------
2004 2003
--------- ----------
Assets
Current assets
Cash and cash equivalents $ 43,036 $ 43,625
Accounts receivable less allowances 64,313 13,103
Inventories 8,157 9,090
Statutory deposits 8,914 10,536
Prepaid income taxes 18,780 2,113
Current deferred income taxes 27,805 9,705
Prepaid expenses and other current assets 16,451 6,130
--------- ----------
Total current assets 187,456 94,302
Investments of deferred compensation plans held in
trust 19,354 15,000
Other investments 1,445 32,789
Note receivable 12,500 12,500
Properties and equipment, at cost less accumulated
depreciation 61,417 47,297
Identifiable intangible assets less accumulated
amortization 25,235 2,739
Goodwill 452,705 111,403
Other assets 31,619 18,814
--------- ----------
Total Assets $791,731 $ 334,844
========= ==========
Liabilities
Current liabilities
Accounts payable $ 38,632 $ 4,261
Current portion of long-term debt 5,806 472
Income taxes 163 341
Deferred contract revenue 13,845 17,323
Accrued insurance 19,692 17,631
Other current liabilities 57,682 18,515
--------- ----------
Total current liabilities 135,820 58,543
Convertible junior subordinated debentures 14,001 14,186
Other long-term debt 315,800 25,802
Deferred compensation liabilities 19,572 14,925
Other liabilities 19,880 22,150
--------- ----------
Total Liabilities 505,073 135,606
--------- ----------
Stockholders' Equity
Capital stock 13,056 13,451
Paid-in capital 195,608 168,568
Retained earnings 111,428 130,308
Treasury stock, at cost (32,741) (111,476)
Unearned compensation (2,480) (4,259)
Deferred compensation payable in Company stock 2,324 2,294
Notes receivable for shares sold (537) (933)
Accumulated other comprehensive income - 1,285
--------- ----------
Total Stockholders' Equity 286,658 199,238
--------- ----------
Total Liabilities and Stockholders' Equity $791,731 $ 334,844
========= ==========
Book Value Per Share $ 23.58 $ 20.28
========= ==========
ROTO-ROOTER, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(in thousands)(unaudited)
Plumbing & Unallocated Roto-
Drain Service Investing & Rooter
Vitas Cleaning America Financing Consolidated
-------- ----------- -------- ----------- ------------
2004
- --------------
Service
revenues and
sales $51,112 $69,228 $10,708 $ - $ 131,048
-------- -------- -------- -------- ------------
Cost of
services
provided and
goods sold 40,486 38,363 7,375 - 86,224
Selling,
general and
administra-
tive expenses 5,391 23,282 2,350 - 31,023
Depreciation 748 2,313 528 - 3,589
Long term
incentive
costs - 8,783 (a) 275 (a) - 9,058
-------- -------- -------- -------- ------------
Total costs
and expenses 46,625 72,741 10,528 - 129,894
-------- -------- -------- -------- ------------
Income/(loss)
from
operations 4,487 (3,513) 180 - 1,154
Intercompany
interest
income/
(expense) - 180 8 (188) -
Interest
expense (28) (40) (5) (2,832) (2,905)
Loss on
extinguish-
ment of debt - - - (3,330)(b) (3,330)
Other income--
net 31 1,103 91 354 1,579
-------- -------- -------- -------- ------------
Income/(loss)
before
income taxes 4,490 (2,270) 274 (5,996) (3,502)
Income taxes (1,893) 427 (128) 2,091 497
Equity in loss
of Vitas - - - (4,105)(c) (4,105)
-------- -------- -------- -------- -------------
Net income/
(loss) $ 2,597 $(1,843) $ 146 $(8,010) $ (7,110)
======== ======== ======== ======== ============
2003
- --------------
Service
revenues and
sales $ - $64,725 $12,920 $ - $ 77,645
-------- -------- -------- -------- ------------
Cost of
services
provided and
goods sold - 36,439 9,713 - 46,152
Selling,
general and
administra-
tive expenses - 23,541 (d) 2,516 - 26,057
Depreciation - 2,418 634 - 3,052
-------- -------- -------- -------- ------------
Total costs
and expenses - 62,398 12,863 - 75,261
-------- -------- -------- -------- ------------
Income/(loss)
from
operations - 2,327 57 - 2,384
Intercompany
interest
income/
(expense) - 103 (6) (97) -
Interest
expense - (51) (11) (745) (807)
Other income--
net - (469) 91 4,640 (e) 4,262
-------- -------- -------- -------- -------------
Income/(loss)
before
income taxes - 1,910 131 3,798 5,839
Income taxes - (885) (91) (1,306) (2,282)
-------- -------- -------- -------- ------------
Net income/
(loss) $ - $ 1,025 $ 40 $ 2,492 $ 3,557
======== ======== ======== ======== ============
- --------------
(a) Amounts represent payouts under the Company's 2002 Executive
Long-term Incentive Plan. The aftertax cost of these charges was
$5,724,000 for Plumbing and Drain Cleaning and $170,000 for
Service America.
(b) Amount represents the prepayment penalty incurred on the early
extinguishment of the Company's debt ($2,164,000 aftertax).
(c) The Company's equity in the loss of Vitas includes total aftertax
charges of $4,621,000 representing its share of Vitas' expenses
incurred in connection with the sale of Vitas to the Company.
(d) Amount includes pretax charges of $3,627,000 ($2,358,000 aftertax)
for severance charges.
(e) Amount includes a pretax gain of $3,544,000 ($2,151,000 aftertax)
from the sales of investments.
ROTO-ROOTER, INC.
PRO FORMA CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(in thousands)(unaudited)
Plumbing & Unallocated Roto-
Drain Service Investing & Rooter
Vitas Cleaning America Financing Consolidated
--------- ----------- -------- ----------- ------------
2004 (a)
- -----------
Service
revenues
and sales $123,982 $69,228 $10,708 $ - $203,918
--------- -------- -------- -------- ------------
Cost of
services
provided
and goods
sold 99,334 38,363 7,375 - 145,072
Selling,
general
and
adminis-
trative
expenses 14,053 23,282 2,350 - 39,685
Deprecia-
tion 1,876 2,313 528 - 4,717
Long term
incentive
costs - 8,783 (d) 275 (d) - 9,058
--------- -------- -------- -------- ------------
Total
costs and
expenses 115,263 (c) 72,741 10,528 - 198,532
--------- -------- -------- -------- ------------
Income/
(loss)
from
opera-
tions 8,719 (3,513) 180 - 5,386
Inter-
company
interest
income/
(expense) - 180 8 (188) -
Interest
expense (28) (40) (5) (6,234) (6,307)
Loss on
extin-
guishment
of debt - - - (3,330)(e) (3,330)
Other
income--
net 71 1,103 91 355 1,620
--------- -------- -------- -------- ------------
Income/
(loss)
before
income
taxes 8,762 (2,270) 274 (9,397) (2,631)
Income
taxes (3,482) 427 (128) 3,282 99
Equity in
loss of
Vitas - - - - -
--------- -------- -------- -------- ------------
Net
income/
(loss) $ 5,280 $(1,843) $ 146 $(6,115) $ (2,532)
========= ======== ======== ======== ============
Earnings/ (Loss) Per Share
Net Income/(Loss) $ (0.21)
============
Average Shares outstanding 12,099
============
Diluted Earnings/(Loss) Per Share
Net Income/(Loss) $ (0.21)
============
Average Shares outstanding 12,099
============
2003 (b)
- -----------
Service
revenues
and sales $100,182 $64,725 $12,920 $ - $177,827
--------- -------- -------- -------- ------------
Cost of
services
provided
and goods
sold 80,919 36,439 9,713 - 127,071
Selling,
general
and
adminis-
trative
expenses 12,398 23,541 (f) 2,516 - 38,455
Deprecia-
tion 1,928 2,418 634 - 4,980
--------- -------- -------- -------- ------------
Total
costs and
expenses 95,245 (c) 62,398 12,863 - 170,506
--------- -------- -------- -------- ------------
Income
from
opera-
tions 4,937 2,327 57 - 7,321
Inter-
company
interest
income/
(expense) - 103 (6) (97) -
Interest
expense - (51) (11) (6,228) (6,290)
Loss on
extin-
guishment
of debt - - - (3,330)(e) (3,330)
Other
income--
net 150 (469) 91 3,928 (g) 3,700
--------- -------- -------- -------- ------------
Income/
(loss)
before
income
taxes 5,087 1,910 131 (5,727) 1,401
Income
taxes (2,028) (885) (91) 1,862 (1,142)
--------- -------- -------- -------- ------------
Net income
(loss) $ 3,059 $ 1,025 $ 40 $(3,865) $ 259
========= ======== ======== ======== ============
Earnings Per Share
Net Income $ 0.02
============
Average Shares outstanding 11,890
============
Diluted Earnings Per Share
Net Income $ 0.02
============
Average Shares outstanding 11,903
============
- -----------
(a) The pro forma statement of operations for 2004 assumes the
Company's acquisition of Vitas and its financing (including the
retirement of existing debt) were completed as of January 1, 2004,
on the same terms and conditions as completed on February 24,
2004.
(b) The pro forma statement of operations for 2003 assumes the
Company's acquisition of Vitas and its financing (including the
retirement of existing debt) were completed as of January 1, 2003,
on the same terms and conditions as completed on February 24,
2004.
(c) Operating expenses for Vitas for 2004 and 2003 include additional
amortization and depreciation expense resulting from purchase
accounting adjustments to Vitas' assets in the amount of
$1,313,000 in each period.
(d) Amounts represent payouts under the Company's 2002 Executive
Long-term Incentive Plan. The aftertax cost of these charges was
$5,724,000 for Plumbing and Drain Cleaning and $170,000 for
Service America.
(e) Amount represents the prepayment penalty incurred on the early
extinguishment of the Company's debt ($2,164,000 aftertax).
(f) Amount includes pretax charges of $3,627,000 ($2,358,000 aftertax)
for severance charges.
(g) Amount includes a pretax gain of $3,544,000 ($2,151,000 aftertax)
from the sales of investments.
ROTO-ROOTER, INC.
CONSOLIDATING SUMMARY OF EBITDA
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(in thousands)(unaudited)
Plumbing & Unallocated Roto-
Drain Service Investing & Rooter
Vitas Cleaning America Financing Consolidated
------- ---------- -------- ------------ ------------
2004
- -----------------
Net income/(loss)$2,597 $ (1,843) $ 146 $ (8,010) $(7,110)
Add/(deduct)
Interest expense 28 40 5 2,832 2,905
Income taxes 1,893 (427) 128 (2,091) (497)
Depreciation and
amortization 1,071 2,372 528 6 3,977
------ ---------- -------- ------------ ------------
EBITDA 5,589 142 807 (7,263) (725)
Add/(deduct)
Long-term
incentive
compensation - 8,783 275 - 9,058
Advertising cost
adjustment (a) - (193) - - (193)
Interest income (31) (37) (44) (448) (560)
Loss on
extinguishment
of debt - - - 3,330 3,330
Equity in loss
of Vitas - - - 4,105 4,105
------ ---------- -------- ------------ ------------
Adjusted EBITDA$5,558 $ 8,695 $ 1,038 $ (276) $15,015
======= ========== ======== ============ ============
2003
- -----------------
Net income/(loss)$ - $ 1,025 $ 40 $ 2,492 $ 3,557
Add/(deduct)
Interest expense - 51 11 745 807
Income taxes - 885 91 1,306 2,282
Depreciation and
amortization - 2,479 751 5 3,235
------ ---------- -------- ------------ ------------
EBITDA - 4,440 893 4,548 9,881
Add/(deduct)
Severance
charges - 3,627 - - 3,627
Advertising cost
adjustment (a) - (1,545) - - (1,545)
Interest income - (72) (95) (648) (815)
Dividend income
from Vitas - - - (712) (712)
Gains on sales
of investments - - - (3,544) (3,544)
------ ---------- -------- ------------ ------------
Adjusted EBITDA$ - $ 6,450 $ 798 $ (356) $ 6,892
======= ========== ======== ============ ============
- -----------------
(a) Under Generally Accepted Accounting Principles ("GAAP"), the
Plumbing and Drain Cleaning segment expenses all advertising,
including the cost of telephone directories, immediately upon the
initial release of the advertising. Telephone directories are
generally in circulation 12 months. If a directory is in
circulation for a time period greater or less than 12 months, the
publisher adjusts the directory billing for the change in billing
period. The timing of when a telephone directory is published can
and does fluctuate significantly on a quarterly basis. This
"direct expensing" results in significant fluctuations in
quarterly advertising expense. In the first quarter of 2004 and
2003, GAAP advertising expense for Plumbing and Drain Cleaning
totaled $3,978,000 and $2,084,000, respectively. If the expense of
the telephone directories were spread over the periods they are in
circulation, advertising expense for the first quarter of 2004 and
2003 would total $4,171,000 and $3,629,000, respectively.
ROTO-ROOTER, INC.
PRO FORMA CONSOLIDATING SUMMARY OF EBITDA
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(in thousands)(unaudited)
Unallocated
Plumbing & Investing & Roto-
Vitas Drain Service Financing Rooter
(a) Cleaning America (a) Consolidated
-------- ---------- ------- ----------- ------------
2004
- ------------------
Pro forma net
income/(loss) $ 5,280 $ (1,843) $ 146 $(6,115) $(2,532)
Add/(deduct)
Interest expense 28 40 5 6,234 6,307
Income taxes 3,482 (427) 128 (3,282) (99)
Depreciation and
amortization 2,679 2,372 528 6 5,585
------- ---------- ------- ----------- ------------
Pro forma EBITDA 11,469 142 807 (3,157) 9,261
Add/(deduct)
Long-term
incentive
compensation - 8,783 275 - 9,058
Advertising cost
adjustment (b) - (193) - - (193)
Interest income (71) (37) (44) (448) (600)
Loss on
extinguishment
of debt - - - 3,330 3,330
------- ---------- ------- ----------- ------------
Pro forma
adjusted EBITDA$11,398 $ 8,695 $1,038 $ (275) $20,856
======== ========== ======= =========== ============
2003
- ------------------
Pro forma net
income/(loss) $ 3,059 $ 1,025 $ 40 $(3,865) $ 259
Add/(deduct)
Interest expense - 51 11 6,228 6,290
Income taxes 2,028 885 91 (1,862) 1,142
Depreciation and
amortization 2,747 2,479 751 5 5,982
------- ---------- ------- ----------- ------------
Pro forma EBITDA 7,834 4,440 893 506 13,673
Add/(deduct)
Severance charges - 3,627 - - 3,627
Advertising cost
adjustment (b) - (1,545) - - (1,545)
Interest income (150) (72) (95) (648) (965)
Dividend income
from Vitas - - - (712) (712)
Gains on sales of
investments - - - (3,544) (3,544)
Loss on
extinguishment
of debt - - - 3,330 3,330
------- ---------- ------- ----------- ------------
Pro forma
adjusted EBITDA$ 7,684 $ 6,450 $ 798 $(1,068) $13,864
======== ========== ======= =========== ============
- ------------------
(a) Pro forma amounts for Vitas and Unallocated Investing and
Financing assume the acquisition of Vitas and the related
financing were both completed on January 1 of the respective year.
(b) Under Generally Accepted Accounting Principles ("GAAP"), the
Plumbing and Drain Cleaning segment expenses all advertising,
including the cost of telephone directories, immediately upon the
initial release of the advertising. Telephone directories are
generally in circulation 12 months. If a directory is in
circulation for a time period greater or less than 12 months, the
publisher adjusts the directory billing for the change in billing
period. The timing of when a telephone directory is published can
and does fluctuate significantly on a quarterly basis. This
"direct expensing" results in significant fluctuations in
quarterly advertising expense. In the first quarter of 2004 and
2003, GAAP advertising expense for Plumbing and Drain Cleaning
totaled $3,978,000 and $2,084,000, respectively. If the expense of
the telephone directories were spread over the periods they are in
circulation, advertising expense for the first quarter of 2004 and
2003 would total $4,171,000 and $3,629,000, respectively.
ROTO-ROOTER, INC.
SUMMARY OF VITAS GROUP HISTORICAL RESULTS
FOR THE FIVE QUARTERS IN THE PERIOD ENDED MARCH 31, 2004
(in thousands)(unaudited)
2003
---------------------------------------
First Second Third
Quarter Quarter Quarter
---------- ---------- ----------
Statement of Income
- ------------------------------
Service revenues and sales $ 100,182 $106,245 $ 113,528
---------- ---------- ----------
Cost of services provided and
goods sold 80,919 82,684 88,373
Selling, general and
administrative expenses 11,585 13,557 13,894
Costs related to pending sale
of business - - -
Depreciation 1,428 1,483 1,244
---------- ---------- ----------
Total costs and expenses 93,932 97,724 103,511
---------- ---------- ----------
Income/(loss) from
operations 6,250 8,521 10,017
Interest expense (1,344) (1,322) (1,843)
Loss on extinguishment of
debt - - (4,117)(c)
Other income--net 150 203 168
---------- ---------- ----------
Income/(loss) before income
taxes 5,056 7,402 4,225
Income taxes (2,015) (2,963) (1,644)
---------- ---------- ----------
Net income/(loss) $ 3,041 $ 4,439 $ 2,581
========== ========== ==========
Calculation of Adjusted EBITDA
- --------------------------------
Net income/(loss) $ 3,041 $ 4,439 $ 2,581
Add/(deduct)
Interest expense 1,344 1,322 1,843
Income taxes 2,015 2,963 1,644
Depreciation 1,428 1,483 1,244
Amortization 6 7 6
---------- ---------- ----------
EBITDA 7,834 10,214 7,318
Add/(deduct)
Interest income (150) (203) (168)
Loss on extinguishment
of debt - - 4,117
Fees for pending sale of
business - - -
---------- ---------- ----------
Pro forma adjusted
EBITDA $ 7,684 $ 10,011 $ 11,267
========== ========== ==========
2003 2004
-----------------------
Fourth Total First
Quarter Year Quarter (a)
---------- ---------- -------------
Statement of Income
- ------------------------------
Service revenues and sales $ 121,062 $441,017 $ 123,982
---------- ---------- ----------
Cost of services provided and
goods sold 93,214 345,190 99,334
Selling, general and
administrative expenses 13,994 53,030 13,577
Costs related to pending sale
of business 1,541 (b) 1,541 (b) 24,956 (d)
Depreciation 1,385 5,540 1,584
---------- ---------- ----------
Total costs and expenses 110,134 405,301 139,451
---------- ---------- ----------
Income/(loss) from
operations 10,928 35,716 (15,469)
Interest expense (1,744) (6,253) (947)
Loss on extinguishment of
debt - (4,117)(c) (4,497)(d)
Other income--net 162 683 72
---------- ---------- ----------
Income/(loss) before income
taxes 9,346 26,029 (20,841)
Income taxes (3,833) (10,455) 5,103
---------- ---------- ----------
Net income/(loss) $ 5,513 $ 15,574 $ (15,738)
========== ========== ==========
Calculation of Adjusted EBITDA
- -------------------------------
Net income/(loss) $ 5,513 $ 15,574 $ (15,738)
Add/(deduct) -
Interest expense 1,744 6,253 947
Income taxes 3,833 10,455 (5,103)
Depreciation 1,385 5,540 1,584
Amortization 7 26 327
---------- ---------- ----------
EBITDA 12,482 37,848 (17,983)
Add/(deduct)
Interest income (162) (683) (72)
Loss on extinguishment
of debt - 4,117 4,497
Fees for pending sale of
business 1,541 1,541 24,956
---------- ---------- ----------
Pro forma adjusted
EBITDA $ 13,861 $ 42,823 $ 11,398
========== ========== ==========
- ------------------
(a) Amounts for the first quarter of 2004 include the combined
operations of Vitas prior to and after acquisition by the Company
on February 24, 2004. Amortization of purchase accounting
adjustments for the February 24, 2004 to March 31, 2004 period
totaled $202,000 for increased depreciation and $327,000 for
increased amortization of intangible assets.
(b) Costs for pending sale of business incurred in 2003 include legal
and other professional fees amounting to $1,541,000 pretax (or
$925,000 aftertax).
(c) Loss on extinguishment of debt totaled $4,117,000 ($2,470,000
aftertax) and represents the cost of writing off deferred issuance
costs at the time Vitas refinanced its debt in the third quarter
of 2003.
(d) Costs related to the sale of Vitas totaled $29,453,000 pretax
($20,930,000 aftertax). Such costs include legal and professional
fees, severance costs and a loss on writing off deferred debt
issuance costs.
ROTO-ROOTER, INC.
RECONCILIATION OF PRO FORMA ADJUSTED NET INCOME/(LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND 2003
(in thousands, except per share data)(unaudited)
Three Months Ended
March 31,
---------------------
2004 2003
--------- -----------
Net income/(loss) as reported $ (7,110) $ 3,557
Add/(deduct):
Pro forma Vitas net income contribution for
the period (a) 2,684 3,059
Pro forma financing costs related to
acquisition of Vitas acquisition (b) (2,211) (3,564)
Pro forma loss on extinguishment of debt in
2003 (b) - (2,164)
Pro forma elimination of equity in loss of
Vitas in 2004 (c) 4,105 -
Pro forma elimination of preferred dividend
income from Vitas in 2003 (c) - (629)
--------- -----------
Pro forma net income/(loss) (2,532) 259
Add/(deduct):
Aftertax cost of long-term incentive payout
in 2004 5,894 -
Aftertax cost of loss on extinguishment of
debt 2,164 2,164
--------- -----------
Adjusted pro forma net income $ 5,526 $ 2,423
========= ===========
Earnings/(Loss) Per Share As Reported
Net income/(loss) $ (0.65) $ 0.36
========= ===========
Average number of shares outstanding 10,912 9,890
========= ===========
Diluted Earnings/(Loss) Per Share As Reported
Net income/(loss) $ (0.65) $ 0.36
========= ===========
Average number of shares outstanding 10,912 9,903
========= ===========
Adjusted Pro Forma Earnings Per Share
Net income $ 0.46 $ 0.20
========= ===========
Average number of shares outstanding 12,099 11,890
========= ===========
Adjusted Pro Forma Diluted Earnings Per Share
Net income $ 0.45 $ 0.20
========= ===========
Diluted average number of shares outstanding 12,359 11,903
========= ===========
- ------------------
(a) Amount represents the additional net income Vitas would contribute
assuming the acquisition were completed on January 1 of the
respective years.
(b) Amounts represent the additional financing costs, including a loss
on early extinguishment of debt in 2003, that would have been
incurred assuming the financing were completed on January 1 of the
respective years.
(c) Amount represents the impact of eliminating the Company's prior
investments in Vitas, assuming the acquisition of Vitas were
completed on January 1 of the respective years.
CONTACT: Roto-Rooter Inc.
David P. Williams, 513-762-6901