Roto-Rooter to Sell Non-Branded Contractors

Special to CONTRACTOR CINCINNATI Chemed Corp. announced Nov. 30 that its board of directors has approved a restructuring plan that includes selling or closing non-Roto-Rooter branded plumbing and HVAC operations and buying out more franchisees. The plan would result in an after-tax charge in the fourth quarter of 2001 of $15 million to $18 million. A majority of the charges are non-cash charges, and

Special to CONTRACTOR

CINCINNATI — Chemed Corp. announced Nov. 30 that its board of directors has approved a restructuring plan that includes selling or closing non-Roto-Rooter branded plumbing and HVAC operations and buying out more franchisees.

The plan would result in an after-tax charge in the fourth quarter of 2001 of $15 million to $18 million. A majority of the charges are non-cash charges, and substantial savings are expected as a result of the restructuring initiatives, according to the company.

Among the major elements of the restructuring plan are:

l Chemed will reduce corporate headquarters personnel, as well as reduce its board of by two inside directors.

l Chemed’s flagship Roto-Rooter subsidiary will exit various under-performing HVAC businesses and non-Roto-Rooter-branded plumbing operations. The company purchased a dozen plumbing and HVAC contracting firms in the 1990s, said Timothy S. O’Toole, executive vice president and treasurer of Chemed.

"We are exiting that entire business segment," he said.

The businesses either will be sold or shut down. Roto-Rooter will retain a "couple that have worked well and are a valuable asset in certain cities where we have other Roto-Rooter operations," said O’Toole.

Divestment of these operations will enable management to focus on the core Roto-Rooter plumbing and drain-cleaning businesses, which it expects to expand through franchise acquisitions. For the past several years, Roto-Rooter has purchased key franchisees in locations throughout the United States.

"We are in discussions openly and constantly with major franchisees and have acquired over 150 of them," said O’Toole. "Our goal, over time, is to provide an exit strategy for franchisees that would like to sell, and there are numerous large cities where we hope to accomplish that. We hope to add $100 million in sales to the company-owned system in the near term."

Chemed’s Service America major-appliance and HVAC service subsidiary and Patient Care home-healthcare subsidiary will reduce personnel and write down certain non-performing assets and intangibles. Chemed announced in the third quarter that Service America was exiting the Tucson, Ariz., market.

O’Toole said he couldn’t discuss Service America until the company issues its 10-Q report in February. He noted, however, that Service America has been performing well. Severance and restructuring costs for the operation would be "modest," he said, because not a lot of personnel would be involved.

Chemed’s long-term debt will be restructured in order to take advantage of current attractive interest rates. Chemed will provide more details about these restructuring initiatives with its 2001 year-end results to be reported in February.