Page 1 of 9
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 December 31, 1998
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 December 31, 1998 was 58,397,632.
FORM 10-Q Page 2 of 9
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 ended December 31, 1998 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
December 31,
1998 1997
Basic EPS 58,464 61,436
Effect of assumed option
exercises 649 802
Diluted EPS 59,113 62,238
No adjustments to net income available to common stockholders were
required during the periods presented.
<PAGE>
FORM 10-Q Page 3 of 9
ROLLINS TRUCK LEASING CORP.
CONSOLIDATED STATEMENT OF EARNINGS
($000 Omitted Except for Per Share Amounts)
Quarter Ended
December 31,
1998 1997
Revenues $155,345 $149,022
Expenses
Operating 60,327 59,813
Depreciation 49,066 44,502
Gain on sale of property and equipment (4,202) (2,151)
Selling and administrative 13,303 13,186
118,494 115,350
Operating earnings 36,851 33,672
Interest expense 13,817 12,499
Earnings before income taxes 23,034 21,173
Income taxes 8,960 8,276
Net earnings $ 14,074 $ 12,897
Earnings per share
Basic $ .24 $ .21
Diluted $ .24 $ .21
Average common shares outstanding (000)
Basic 58,464 61,436
Diluted 59,113 62,238
Dividends paid per common share $ .05 $ .037
<PAGE>
FORM 10-Q Page 4 of 9
ROLLINS TRUCK LEASING CORP.
CONSOLIDATED BALANCE SHEET
($000 Omitted)
December 31, September 30,
ASSETS 1998 1998
Current assets
Cash $ 17,759 $ 27,015
Accounts receivable, net of allowance for
doubtful accounts of: December-$2,531;
September-$2,452 70,401 75,227
Inventories 7,674 7,394
Prepaid expenses 20,899 18,056
Deferred income taxes 7,034 7,034
Total current assets 123,767 134,726
Equipment on operating leases, at cost,
net of accumulated depreciation of:
December-$491,315; September-$477,380 937,915 924,887
Other property and equipment, at cost,
net of accumulated depreciation of:
December-$90,863; September-$87,734 219,846 219,343
Excess of cost over net assets of
businesses acquired 11,731 11,816
Other assets 5,597 5,761
Total assets $1,298,856 $1,296,533
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities (excluding equipment
financing obligations)
Accounts payable $ 10,961 $ 12,246
Accrued liabilities 52,310 52,023
Income taxes payable 6,229 1,292
Total current liabilities 69,500 65,561
Equipment financing obligations 737,398 749,876
Other liabilities 15,232 14,144
Deferred income taxes 178,116 174,908
Commitments and contingent liabilities
See Part II Legal Proceedings
Shareholders' equity
Common stock, $1 par value,
100,000,000 shares authorized; issued
and outstanding: December-58,397,632;
September-58,799,281 58,398 58,799
Additional paid-in capital 209 11
Retained earnings 240,003 233,234
Total shareholders' equity 298,610 292,044
Total liabilities and shareholders' equity $1,298,856 $1,296,533
FORM 10-Q Page 5 of 9
ROLLINS TRUCK LEASING CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
($000 Omitted)
Quarter Ended
December 31,
1998 1997
Cash flows from operating activities:
Net earnings $ 14,074 $ 12,897
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 49,152 44,587
Net gain on sale of property and equipment (4,202) (2,151)
Changes in assets and liabilities:
Accounts receivable 4,825 2,648
Accounts payable and accrued liabilities (1,000) (1,504)
Current and deferred income taxes 8,145 8,147
Other, net (1,871) (2,158)
Net cash provided by operating activities 69,123 62,466
Cash flows from investing activities:
Purchase of property and equipment (76,515) (55,793)
Proceeds from sales of equipment 18,119 13,630
Net cash used in investing activities (58,396) (42,163)
Cash flows from financing activities:
Proceeds of equipment financing obligations 34,866 6,500
Repayment of equipment financing obligations (47,341) (23,999)
Payments of dividends (2,923) (2,257)
Proceeds of stock options exercised 402 822
Common stock acquired and retired (4,987) (4,942)
Net cash used in financing activities (19,983) (23,876)
Net decrease in cash (9,256) (3,573)
Cash beginning of period 27,015 17,637
Cash end of period $ 17,759 $ 14,064
Supplemental information:
Interest paid $ 6,447 $ 7,003
Income taxes paid $ 815 $ 129
<PAGE>
FORM 10-Q Page 6 of 9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations: Quarter Ended December 31, 1998 vs. Quarter Ended
December 31, 1997
Revenues for the quarter ended December 31, 1998 increased by $6,323,000
(4.2%) to $155,345,000 compared with $149,022,000 reported for the first
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 were essentially the same
as in the prior year due to the loss of two large accounts at the end of
the last fiscal year.
Strong commercial rental utilization of a larger fleet during the first
fiscal quarter generated a 13% increase in commercial rental revenue over
the prior year. Long-term full-service lease business experienced moderate
growth during the quarter despite the continuing delay in receiving
equipment from manufacturers.
Operating expenses increased by $514,000 (.9%) to $60,327,000 in the
first fiscal quarter compared with $59,813,000 last year. Vehicle license
and tax expenses increased by $1,053,000 and reflected both the expanded
fleet size and increased registration fees in certain jurisdictions.
Overall operating cost increases were broad-based and reflected the higher
level of business. Operating expenses increased at a slower rate than
revenues as the Company benefitted from the cost savings experienced from
full implementation of the Rollins Automated Maintenance Program, which is
a fully integrated purchase order/repair order system. Additionally, with
the completion of the Company's underground storage tank replacement
program during calendar year 1998, the cost levels associated with the
program were lower during the first fiscal quarter of 1999 than they were
a year ago. Operating expenses as a percent of revenues were 38.8% and
40.1% in 1998 and 1997, respectively.
Depreciation increased by $4,564,000 (10.3%) due to the increased
investment in equipment on operating leases, as well as the commercial
rental fleet and related transportation service facilities required to
support the higher level of business.
Gain on the sale of property and equipment increased by $2,051,000
(95.4%) 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 $117,000 (.9%) due to
modest increases in salaries and wages, offset in large part by a $375,000
reduction in advertising costs. As a percent of revenues, selling and
administrative expenses decreased to 8.6% in 1998 from 8.9% in 1997.
Interest expense increased by $1,318,000 (10.5%) due to the increased
level of borrowings when compared with the same fiscal quarter last year.
The increase in interest expense associated with the higher borrowing level
was offset in part by lower interest rates.
The effective income tax rates for the first fiscal quarter of 1999 and
1998 were 38.9% and 39.1%, respectively.
FORM 10-Q Page 7 of 9
Net earnings increased by $1,177,000 (9.1%) to $14,074,000 or $.24 per
diluted share from $12,897,000 or $.21 per diluted share in fiscal 1998.
Liquidity and Capital Resources
Cash flows from operating activities of $69,123,000 were generated
principally from net earnings of $14,074,000 and noncash depreciation and
amortization expenses of $49,152,000. Investing activities used
$58,396,000 of cash for the purchase of property and equipment net of the
cash proceeds received from the sale of equipment. The net cash flow from
operating activities less cash used for investing activities of $10,727,000
and available cash balances were used to pay dividends, repurchase 467,000
shares of the Company's $1 par value common stock and to reduce equipment
financing obligations by a net amount of $12,475,000.
The Company's principal subsidiary, Rollins Leasing Corp., has revolving
credit facilities which aggregate $100,000,000 of which $77,000,000 was
available at December 31, 1998. These facilities, used primarily to
finance vehicle purchases on an interim basis pending placement of long-
term financing, require the maintenance of specified financial ratios and
restricts payments to the Company. At the option of the banks who provide
the facilities, the Company's Collateral Trust Debentures and outstanding
balances under these facilities may be secured by certain leasing
equipment.
On December 15, 1998, the Company redeemed $30,000,000 of outstanding
Series J, 8 5/8% Collateral Trust Debentures. Additionally, at December
31, 1998, the Company could sell an additional $155,000,000 of Collateral
Trust Debentures under its current shelf registration statement. 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 continue 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 Collateral
Trust Indenture 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 pages 3 through 7 of the Company's 1998
Annual Report to Shareholders 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 December 31, 1998, approximately 90 percent of all host-based coding
and testing was completed. Additionally, full production implementation
was completed with regard to 90 percent of the remediated systems. The
remaining production implementation is expected to be completed by March
31, 1999.
FORM 10-Q Page 8 of 9
As part of the Company's remediation efforts, the field data collection
systems are being rewritten. Approximately 20 percent of this effort was
completed by December 31, 1998 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 June 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
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 $1,500,000, of
which approximately $1,000,000 has been expended through December 31, 1998,
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.
FORM 10-Q Page 9 of 9
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.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
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: February 1, 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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<PERIOD-END> DEC-31-1998
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