Page 1 of 11
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
___
| X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
___
|___| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-5728
ROLLINS TRUCK LEASING CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 51-0074022
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Rollins Plaza, Wilmington, Delaware 19803
(Address of principal executive offices) (Zip Code)
(302) 426-2700
(Registrant's telephone number, including area code)
(Former name of registrant)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 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 _____
The number of shares of the registrant's common stock outstanding
as of March 31, 1999 was 57,589,688.
FORM 10-Q Page 2 of 11
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
A. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the quarter and six months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the year
ended September 30, 1999. These statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended September 30, 1998.
B. Earnings Per Share
Pursuant to the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," the number of weighted average
shares used in computing basic and diluted earnings per share (EPS) are as
follows (in thousands):
Three Months Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
Basic EPS 58,124 61,233 58,296 61,334
Effect of assumed option
exercises 512 863 580 833
Diluted EPS 58,636 62,096 58,876 62,167
No adjustments to net income available to common stockholders were
required during the periods presented.
<PAGE>
FORM 10-Q Page 3 of 11
ROLLINS TRUCK LEASING CORP.
CONSOLIDATED STATEMENT OF EARNINGS
($000 Omitted Except for Per Share Amounts)
Quarter Ended Six Months Ended
March 31, March 31,
1999 1998 1999 1998
Revenues $150,929 $145,050 $306,274 $294,072
Expenses:
Operating 60,595 60,307 120,921 120,120
Depreciation 48,973 44,802 98,040 89,304
Gain on sale of property
and equipment (4,446) (2,478) (8,648) (4,629)
Selling and administrative 14,351 13,598 27,654 26,784
119,473 116,229 237,967 231,579
Operating earnings 31,456 28,821 68,307 62,493
Interest expense 13,208 12,562 27,025 25,061
Earnings before income taxes 18,248 16,259 41,282 37,432
Income taxes 7,099 6,323 16,059 14,599
Net earnings $ 11,149 $ 9,936 $ 25,223 $ 22,833
Earnings per share
- Basic $ .19 $ .16 $ .43 $ .37
- Diluted $ .19 $ .16 $ .43 $ .37
Average common shares
outstanding (000)
- Basic 58,124 61,233 58,296 61,334
- Diluted 58,636 62,096 58,876 62,167
Dividends paid per
common share $ .05 $ .037 $ .10 $ .073
<PAGE>
FORM 10-Q Page 4 of 11
ROLLINS TRUCK LEASING CORP.
CONSOLIDATED BALANCE SHEET
($000 Omitted)
March 31, September 30,
ASSETS 1999 1998
Current assets
Cash $ 12,504 $ 27,015
Accounts receivable, net of allowance for
doubtful accounts of: March-$2,448;
September-$2,452 68,118 75,227
Inventories 7,641 7,394
Prepaid expenses 19,246 18,056
Deferred income taxes 7,034 7,034
Total current assets 114,543 134,726
Equipment on operating leases, at cost,
net of accumulated depreciation of:
March-$489,356; September-$477,380 955,875 924,887
Other property and equipment, at cost,
net of accumulated depreciation of:
March-$93,870; September-$87,734 221,410 219,343
Excess of cost over net assets of
businesses acquired 11,646 11,816
Other assets 5,483 5,761
Total assets $1,308,957 $1,296,533
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities (excluding equipment
financing obligations)
Accounts payable $ 12,185 $ 12,246
Accrued liabilities 42,960 52,023
Income taxes payable 2,737 1,292
Total current liabilities 57,882 65,561
Equipment financing obligations 758,264 749,876
Other liabilities 13,593 14,144
Deferred income taxes 180,851 174,908
Commitments and contingent liabilities
See Part II Legal Proceedings
Shareholders' equity
Common stock, $1 par value,
100,000,000 shares authorized; issued
and outstanding: March-57,589,688;
September-58,799,281 57,590 58,799
Additional paid-in capital - 11
Retained earnings 240,777 233,234
Total shareholders' equity 298,367 292,044
Total liabilities and shareholders' equity $1,308,957 $1,296,533
FORM 10-Q Page 5 of 11
ROLLINS TRUCK LEASING CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
($000 Omitted)
Six Months Ended
March 31,
1999 1998
Cash flows from operating activities:
Net earnings $ 25,223 $ 22,833
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 98,210 89,474
Net gain on sale of property and equipment (8,636) (4,629)
Changes in assets and liabilities:
Accounts receivable 7,108 6,022
Accounts payable and accrued liabilities (9,129) (7,900)
Current and deferred income taxes 7,387 9,588
Other, net (1,709) (1,122)
Net cash provided by operating activities 118,454 114,266
Cash flows from investing activities:
Purchase of property and equipment (166,429) (137,693)
Proceeds from sales of equipment 43,971 30,686
Net cash used in investing activities (122,458) (107,007)
Cash flows from financing activities:
Proceeds of equipment financing obligations 68,094 45,593
Repayment of equipment financing obligations (59,701) (29,297)
Payment of dividends (5,833) (4,506)
Proceeds of stock options exercised 740 1,456
Common stock acquired and retired (13,807) (21,664)
Other - (93)
Net cash used in financing activities (10,507) (8,511)
Net decrease in cash (14,511) (1,252)
Cash beginning of period 27,015 17,637
Cash end of period $ 12,504 $ 16,385
Supplemental information:
Interest paid $ 25,845 $ 24,339
Income taxes paid $ 8,672 $ 5,011
FORM 10-Q Page 6 of 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations: Six Months Ended March 31, 1999 vs. Six Months
Ended March 31, 1998
Revenues for the six months ended March 31, 1999 increased by
$12,202,000 (4.2%) to $306,274,000 compared with $294,072,000 for the same
period last year. Full-service lease, guaranteed maintenance and
commercial rental revenues all improved over the same period last year.
Logistics and dedicated revenues declined by 5.2% due to the loss of two
large accounts at the end of the last fiscal year and higher than normal
customer turnover during the current fiscal year.
Strong commercial rental utilization of a larger fleet generated an
increase of 12.4% in commercial rental revenues over the same period last
year. Long-term full-service lease business experienced modest growth
during the current fiscal year as the Company continued to be affected by
the industry-wide delay in receiving transportation equipment from
manufacturers.
Operating expenses remained essentially flat, increasing by only .7%,
during the current fiscal year and were $120,921,000 compared with
$120,120,000 last year. Increased vehicle license and tax expenses of
$1,795,000, outside repair costs of $804,000 and shop payroll expenses of
$681,000 were in large part offset by a reduction in driver payroll of
$1,641,000 and fuel costs of $492,000 associated with the decline in
logistics and dedicated revenues. Operating expenses as a percent of
revenues were 39.5% and 40.8% in 1999 and 1998, respectively.
Depreciation expense increased by $8,736,000 (9.8%) due to the
increased investment in equipment on operating leases, as well as the
commercial rental fleet and related transportation service facilities. The
increased investment in revenue-producing equipment and related service
facilities continued to reflect the increased level of business.
Gain on the sale of property and equipment increased by $4,019,000
(86.8%) principally due to higher average selling prices realized on
transportation equipment and an increase in the number of units sold.
Selling and administrative expenses increased by $870,000 (3.3%) to
$27,654,000 during the current fiscal year from $26,784,000 last year and
reflected the increase in revenue. Increased salaries and wages and office
expenses were offset in large part by reductions experienced in advertising
and insurance costs. As a percent of revenues, selling and administrative
expenses decreased to 9.0% in 1999 from 9.1% in 1998.
Interest expense increased by $1,964,000 (7.8%) due to the increased
level of borrowings when compared with the same period last year. Interest
rates decreased slightly when compared with the prior year.
The effective income tax rate for the first six months of 1999 and 1998
was 38.9% and 39.0%, respectively.
Net earnings increased by $2,390,000 (10.5%) to $25,223,000 or $.43 per
diluted share from $22,833,000 or $.37 per diluted share in fiscal 1998.
FORM 10-Q Page 7 of 11
The increased net earnings resulted from higher revenues which were reduced
in part by the incremental costs associated with such revenues.
Results of Operations: Quarter Ended March 31, 1999 vs. Quarter Ended
March 31, 1998
Revenues for the quarter ended March 31, 1999 increased by $5,879,000
(4.1%) to $150,929,000 compared with $145,050,000 reported for the second
fiscal quarter last year. Full-service lease, guaranteed maintenance and
commercial rental revenues all improved over the same quarter of the
preceding year. Logistics and dedicated revenues declined by 9.6%
principally due to the loss of two large accounts at the end of the last
fiscal year.
Strong commercial rental utilization of a larger fleet continued during
the second fiscal quarter and generated an increase of 11.4% in commercial
rental revenues over the same quarter of the prior year. Long-term full-
service lease business continued to experience moderate growth during the
second fiscal quarter. Overall revenue growth was negatively affected by
higher than normal customer turnover in early 1999 and the industry-wide
delay in receiving transportation equipment from manufacturers.
Operating expenses increased by $288,000 (.5%) to $60,595,000 during
the second fiscal quarter from $60,307,000 last year. Modest, broad-based
expense increases which reflected the Company's increased revenues were
essentially offset by a reduced level of operating expenses associated with
the logistics and dedicated business, as previously discussed.
Depreciation expense increased by $4,171,000 (9.3%) due to the
increased investment in equipment on operating leases and related
transportation service facilities. As a percent of revenues, depreciation
expense increased to 32.5% in 1999 from 30.9% in 1998.
Gain on the sale of property and equipment increased by $1,968,000
(79.4%) principally due to the higher selling prices realized on
transportation equipment and an increase in the number of units sold.
Selling and administrative expenses increased by $753,000 (5.5%). The
most significant fluctuation resulted from increased compensation costs of
$476,000 which reflected the higher level of business. As a percent of
revenues, selling and administrative expenses increased to 9.5% in 1999
from 9.4% in 1998.
Interest expense increased by $646,000 (5.1%) and reflected the
increased level of borrowings during the second quarter when compared with
the same period last year.
The effective income tax rate for both the second fiscal quarter of
1999 and 1998 was 38.9%.
Net earnings increased by $1,213,000 (12.2%) to $11,149,000 or $.19 per
diluted share from $9,936,000 or $.16 per diluted share in fiscal 1998.
The increased net earnings resulted from the higher revenues which were
reduced in part by the incremental costs associated with such revenues.
FORM 10-Q Page 8 of 11
Liquidity and Capital Resources
Cash flows from operating activities of $118,454,000 were generated
principally from net earnings of $25,223,000 and the noncash depreciation
and amortization expenses totaling $98,210,000. The net cash provided by
operating activities plus the proceeds of equipment financing obligations
of $68,094,000 and cash proceeds received from the sale of equipment of
$43,971,000 were used to purchase property and equipment of $166,429,000,
reduce equipment financing obligations by $59,701,000, repurchase and
retire common stock for $13,807,000 and pay dividends.
The Company's principal subsidiary, Rollins Leasing Corp., has a
$100,000,000 revolving credit facility of which $54,500,000 was available
at March 31, 1999. This credit facility requires the maintenance of
specified financial ratios and restricts payments to the Company.
At March 31, 1999, the Company could sell an additional $155,000,000 of
Collateral Trust Debentures under its current shelf registration statement.
On Monday, April 5, 1999, the Company sold $100,000,000 of its 6.75%
Collateral Trust Debentures, Series T, due April 5, 2006. Based on its
access to the debt markets and relationships with current lending
institutions and others who have expressed an interest in providing
financing, the Company expects to be able to obtain financing for its
equipment and facility purchases at market rates and under satisfactory
terms and conditions. Covenants in the Company's outstanding Collateral
Trust Debentures restrict the Company's dividend payments to consolidated
net earnings subsequent to September 30, 1984 subject to certain
adjustments.
Otherwise, there have been no material changes in the Company's
financial condition and its liquidity and capital resources since September
30, 1998. For further details, see the Company's 1998 Annual Report on
Form 10-K for the year ended September 30, 1998.
Year 2000 ("Y2K") Readiness Disclosure
The Company is aware of the issues related to the approach of the year
2000 and continued its program to ensure that critical systems and
equipment will function appropriately after the turn of the century.
By March 31, 1999, essentially all host-based coding and testing was
completed. Additionally, full production implementation was completed with
regard to 95 percent of the remediated systems. The remaining production
implementation is expected to be completed by June 30, 1999.
As part of the Company's remediation efforts, the field data collection
systems are being rewritten. Approximately 90 percent of this effort was
completed by March 31, 1999 and the remaining required remediation efforts
are expected to be completed by May 31, 1999.
With the exception of remediation and implementation consequences not
known to the Company at this time, the Company believes that all systems
should be fully implemented by September 30, 1999.
While it is not possible for the Company to predict all future outcomes
and eventualities, the Company is not aware, at this time, of any Y2K non-
compliant situations with regard to any of its purchased software or its
FORM 10-Q Page 9 of 11
use of suppliers and outside service providers which would have a material
adverse effect upon the Company.
The Company estimates that it will spend approximately $2,000,000, of
which approximately $1,500,000 has been expended through March 31, 1999, to
fully implement its Y2K compliance program. All Y2K costs have been and
will continue to be funded from operations.
Forward-Looking Statements
The Company may make forward-looking statements relating to anticipated
financial performance, business prospects, acquisitions or divestitures,
new products, market forces, commitments and other matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. In order to comply with the terms of the safe
harbor, the Company notes that a variety of factors could cause the
Company's actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements. Forward-looking statements typically contain
words such as "anticipates", "believes", "estimates", "expects",
"forecasts", "predicts", or "projects", or variations of these words,
suggesting that future outcomes are uncertain.
Various risks and uncertainties may affect the operations, performance,
development and results of the Company's business and could cause future
outcomes to differ materially from those set forth in forward-looking
statements, including the following factors: general economic conditions,
competitive factors and pricing pressures, shift in market demand, the
performance and needs of industries served by the Company, equipment
utilization, management's success in developing and introducing new
services and lines of business, potential increases in labor costs,
potential increases in equipment, maintenance and fuel costs, uncertainties
of litigation, the Company's ability to finance its future business
requirements through outside sources or internally generated funds, the
availability of adequate levels of insurance, success or timing of
completion of ongoing or anticipated capital or maintenance projects,
management retention and development, changes in Federal, State and local
laws and regulations, including environmental regulations, as well as the
risks, uncertainties and other factors described from time to time in the
Company's SEC filings and reports.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There are no material legal proceedings to which the Company or any of
its subsidiaries is a party. Certain subsidiaries of the Company are
involved in ordinary routine litigation incidental to the operation of its
business.
Item 2. Changes in Securities
None.
FORM 10-Q Page 10 of 11
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on January 28,
1999. With regard to Proposal No. 1 of the NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON JANUARY 28, 1999 to elect two Class I Directors
to the Board of Directors, Patrick J. Bagley and Gary W. Rollins were
elected. At the meeting, 49,844,396 and 49,822,350 affirmative votes were
cast for Patrick J. Bagley and Gary W. Rollins, respectively. There were
no votes cast against the nominees and 961,850 and 983,896 votes were
withheld from Patrick J. Bagley and Gary W. Rollins, respectively.
Item 5. Other Information
The unaudited condensed consolidated statement of earnings for the
twelve months ended March 31, 1999 shown below has been included in
accordance with provisions of the Securities Act of 1933. This statement
has been prepared in accordance with the instructions to Form 10-Q and does
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
ROLLINS TRUCK LEASING CORP.
CONSOLIDATED STATEMENT OF EARNINGS
($000 Omitted Except for Per Share Amounts)
Twelve Months Ended
March 31, 1999
Revenues $622,359
Expenses:
Operating 245,061
Depreciation 192,201
Gain on sale of property
and equipment (13,806)
Selling and administrative 56,400
479,856
Operating earnings 142,503
Interest expense 53,550
Earnings before income taxes 88,953
Income taxes 34,540
Net earnings $ 54,413
Earnings per share
Basic $ .92
Diluted $ .91
Dividends paid per common share $ .18
<PAGE>
FORM 10-Q Page 11 of 11
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
None
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.
DATE: April 28, 1999 Rollins Truck Leasing Corp.
(Registrant)
/s/ John W. Rollins, Jr.
John W. Rollins, Jr.
President and Chief Operating Officer
/s/ Patrick J. Bagley
Patrick J. Bagley
Vice President-Finance and Treasurer
Chief Financial Officer
Chief Accounting Officer
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<COMMON> 57,590
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