ITEM 2. PROPERTIES. The Company's headquarters is located in a building owned by the Company at One Rollins Plaza, Wilmington, DE 19803.
The Company's principal operating properties consist of land and buildings used in its truck leasing and rental business. Rollins owns or leases 202 facilities in 42 states.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS. Neither the Company nor any of its subsidiaries is a party to any material legal proceedings. The Company and its subsidiaries are engaged in ordinary routine litigation incidental to the business.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. NONE.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
STOCK PRICES AND DIVIDENDS
The range of share prices for the Common Stock on the New York and Pacific Stock Exchanges and per share dividends paid on Common Stock for the fiscal years ended September 30, 1996 and 1995 are as follows:
Prices Dividends 1996 1995 1996 1995 High Low High Low Fiscal Quarter First .......... $11 1/4 $ 9 1/4 $12 1/2 $11 $.045 $.04 Second ......... 11 1/8 10 14 1/2 11 3/8 .045 .04 Third .......... 11 5/8 9 5/8 12 5/8 10 3/8 .045 .04 Fourth ......... 12 1/2 10 1/8 11 3/4 10 1/4 .045 .04
At September 30, 1996, there were 2,379 holders of record of the Common Stock.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
FIVE YEAR SELECTED FINANCIAL DATA (Dollars in Millions, Except Per Share Amounts)
Year Ended September 30, 1996 1995 1994 1993 1992 Revenues 513.8 482.6 450.9 408.8 380.4 Earnings before income taxes 55.9 67.1 66.4 54.7 40.7 Net earnings 34.1 41.3 39.8 30.4 24.6 Earnings per share .78 .91 .86 .66 .53 Dividends per common share .18 .16 .13 .12 .11 At September 30, Total assets 1,125.2 1,027.0 909.7 781.2 708.5 Equipment on operating leases, net 784.3 727.9 637.8 543.4 468.3 Equipment financing obligations 640.9 573.6 498.4 427.3 390.3 Long-term debt .5 .6 .8 .9 6.8 Shareholders' equity 284.0 275.6 251.2 216.8 191.0
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Results of Operations
Fiscal Year 1996 vs. 1995
Revenues increased by $31.2 million (6.5%) to $513.8 million from $482.6 million as full-service lease, guaranteed maintenance and dedicated logistics revenues all improved over the prior year. Revenues from the more economically sensitive short-term commercial rental business declined due in large part to overcapacity in the trucking industry.
Operating expenses increased by $17.8 million (9.2%) reflecting the increase in revenues. Higher vehicle expenses and wages associated with the growing dedicated logistics services business accounted in large part for the operating expense increases. Operating expenses as a percentage of revenues increased to 41.3% in 1996 from 40.2% in 1995. The increased operating cost ratio results from both higher operating costs and industry-wide competitive pricing.
Depreciation expense increased by $11.6 million (7.9%) due to the increased investment in equipment on operating leases and related transportation service facilities. The higher levels of investment in property and equipment reflect, in addition to the higher level of business, increased prices paid for recently acquired capital assets. Depreciation as a percentage of revenues was 30.8% in 1996 compared with 30.4% in 1995. The higher percentage in 1996 reflected both higher equipment costs and the effects of competitive conditions which limited price increases.
Gain on the sale of property and equipment was $7.9 million, a decrease of $4.8 million (37.8%) when compared with the 1995 gain of $12.7 million. The decrease in 1996 resulted from the sale of fewer units of transportation equipment and lower prices realized from such sales.
Selling and administrative expenses increased by $4.9 million (11.4%) to $48.0 million from $43.1 million in 1995. The increase reflects expanded revenues along with higher compensation and related costs of an expanded sales force. In addition, office, bad debt and data processing expenses were higher during 1996. As a percentage of revenues, selling and administrative expenses increased to 9.3% in 1996 from 8.9% in 1995.
Interest expense increased by $3.3 million (7.5%) principally due to the increase in average borrowings related to the purchase of additional equipment offset in part by a lower average interest rate on the Company's Collateral Trust Debentures.
The effective income tax rates for 1996 and 1995 were 39.0% and 38.4%, respectively.
Net earnings decreased by $7.2 million (17.4%) to $34.1 million or $.78 per share from $41.3 million or $.91 per share in 1995. Net earnings as a percentage of revenues was 6.6% in 1996 compared with 8.6% in 1995. The decrease in net earnings was due mainly to the higher operating cost ratio, lower gains on the sale of equipment, higher depreciation, selling and administrative and interest expense.
Fiscal Year 1995 vs. 1994
Revenues increased by $31.7 million (7.0%) to $482.6 million from $450.9 million as full-service leasing, commercial rental and dedicated carriage service revenues all improved over the prior year. This revenue improvement was realized despite a continuing sluggish economic climate. Business conditions were excellent during the first fiscal quarter ended December 31, 1994, but the economy weakened beginning in January, 1995 which affected the Company's short-term commercial rental business for the remainder of the year.
Operating expenses increased by $10.9 million (5.9%) reflecting the increase in revenues and the costs associated with opening new facilities and making improvements to existing facilities. Operating expenses as a percentage of revenues decreased to 40.2% in 1995 from 40.6% in 1994. The increased revenues combined with lower maintenance costs on new equipment and continued expense control efforts accounted for the lower operating cost ratio.
Depreciation expense increased by $16.3 million (12.5%) due to the increased investment in equipment on operating leases and related transportation service facilities. The higher levels of investment in property and equipment reflected, in addition to the higher level of business, increased prices paid for recently acquired equipment. Depreciation as a percentage of revenues was 30.4% in 1995 compared with 28.9% in 1994. The higher percentage in 1995 reflected both higher equipment costs and the effects of competitive conditions which limited price increases.
Gain on the sale of property and equipment was $12.7 million, an increase of $4.2 million (49.4%) over the 1994 gain of $8.5 million. During 1995, the Company sold more vehicles at higher prices resulting in the increased gain.
Selling and administrative expenses increased by $.7 million and were 8.9% of revenues in 1995 compared with 9.4% of revenues in 1994.
Interest expense increased by $7.3 million (19.8%) principally due to the increase in average borrowings related to the purchase of additional equipment and higher short-term interest rates.
The effective income tax rates for 1995 and 1994 were 38.4% and 40.0%, respectively. The 1995 effective tax rate was favorably impacted by the resolution of certain state income tax matters.
Net earnings increased by $1.5 million (3.8%) to $41.3 million or $.91 per share from $39.8 million or $.86 per share in 1994. Net earnings as a percentage of revenues was 8.6% in 1995 compared with 8.8% in 1994. Higher depreciation and interest expenses combined with a lower level of profitability from the commercial rental fleet, offset in part by a higher gain on the sale of equipment, contributed to 1995's lower net profit margin.
Liquidity and Capital Resources The Company's primary operation is the full-service leasing and rental of tractors, trucks and trailers which requires substantial amounts of capital and constant access to financing sources. At September 30, 1996, equipment on operating leases of $784.3 million represented 69.7% of the Company's assets. Funds for the acquisition of this equipment are provided principally by the cash flows from operations, the proceeds from the sale of used equipment and borrowings under the Company's revolving credit facility. Cash flows from operations were $202.4 million in 1996, a 2.0% increase from $198.5 million in 1995. Because existing leases provide the primary source of funds from operations, the Company expects a similar amount of funds to be generated in 1997.
Equipment financing obligations increased to $640.9 million at September 30, 1996 from $573.6 million a year earlier. Borrowings from external sources included equipment term loans furnished by commercial banks and the sale of Collateral Trust Debentures.
The Company's principal subsidiary, Rollins Leasing Corp., has a $100.0 million revolving credit facility of which $90.0 million was available at September 30, 1996. This facility is used primarily to finance vehicle purchases on an interim basis pending placement of long-term financing. On March 15, 1996, the Company closed on a private placement of $75.0 million of 6.89% Series P Collateral Trust Debentures due March 15, 2004 and on August 7, 1996, the Company sold $60.0 million of 6.875% Series Q Collateral Trust Debentures due August 1, 2001.
At September 30, 1996, the Company could sell an additional $30.0 million 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.
At September 30, 1996, the debt to equity ratio of the Company was 2.3 to 1.0 compared with 2.1 to 1.0 in 1995.
Capital expenditures were $297.3 million in 1996 compared with $319.0 million in 1995. At September 30, 1996, the Company's commitment for the purchase of revenue equipment was $104.6 million. Based on the current level of business and including commitments already made at September 30, 1996, the Company anticipates spending approximately $275.0 million for equipment and facilities in 1997.
During 1996, the Company purchased for cash and retired 1,746,000 shares of its $1 par value common stock for $18.2 million. At September 30, 1996, the Company was authorized to purchase 344,000 additional shares of its stock. One October 7, 1996, the Board of Directors authorized the purchase of up to an additional 2,000,000 shares of the Company's common stock.
Impact of Recent Accounting Pronouncements During 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" (SFAS 121) and SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), which are both effective in fiscal 1997. The Company has determined that SFAS 121 will not have a material effect on its financial statements. The Company has also decided to adopt only the disclosure provisions of SFAS 123 when required in fiscal 1997.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The consolidated financial statements of the Company, the Independent Auditors' Report and the financial statement schedules included in this report are shown on the Index to the Consolidated Financial Statements and Schedules on page 11.
ITEM 9.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. NONE.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Except as presented below, the information called for by this Item 10 is incorporated by reference from the Company's Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Shareholders to be held on January 30, 1997.
Executive Officers of the Registrant. As of October 31, 1996, the Executive Officers of the registrant were:
Name Position Age Term of Office
Patrick J. Bagley Vice President-Finance and 49 7/87 to date Treasurer 1/87 to date
David F. Burr Chairman and Chief Executive 61 10/92 to date Officer, Rollins Leasing Corp.
Michael B. Kinnard Vice President-General Counsel 39 10/94 to date and Secretary 10/94 to date
John W. Rollins Chairman of the Board and 80 1954 to date Chief Executive Officer 10/74 to date
John W. Rollins, Jr. President and Chief Operating 54 9/75 to date Officer and Director
Henry B. Tippie Chairman of the Executive 69 3/74 to date Committee and Vice Chairman of the Board
The Company's Executive Officers are elected for the ensuing year and until their successors are elected.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION. The information called for by this Item 11 is incorporated by reference from the Company's Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Shareholders to be held on January 30, 1997.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information called for by this Item 12 is incorporated by reference from the Company's Proxy Statement to be filed pursuant to Regulation 14A for the Annual Meeting of Shareholders to be held on January 30, 1997.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. During the year ended September 30, 1996, the following officers and/or directors of the Company were also officers and/or directors of Rollins Environmental Services, Inc.; Patrick J. Bagley, Michael B. Kinnard, William B. Philipbar, Jr., John W. Rollins, John W. Rollins, Jr. and Henry B. Tippie. The following officers and/or directors of the Company were also officers and/or directors of Matlack Systems, Inc.; Patrick J. Bagley, Michael B. Kinnard, William B. Philipbar, Jr., John W. Rollins, John W. Rollins, Jr. and Henry B. Tippie. John W. Rollins owns directly and of record 6.1% and 11.5% of the outstanding shares of Common Stock of Rollins Environmental Services, Inc. and Matlack Systems, Inc., respectively at October 31, 1996. The description of transactions between the Company and Rollins Environmental Services, Inc. and between the Company and Matlack Systems, Inc. appears under the caption "Transactions with Related Parties" on page 23 of this 1996 Annual Report on Form 10-K.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) Financial Statements, Financial Statement Schedules and Exhibits.
(1) Financial Statements - See accompanying Index to Consolidated Financial Statements and Schedules on page 11.
(2) Financial Statements Schedules - See accompanying Index to Consolidated Financial Statements and Schedules on page 11.
(3) Exhibits: (3) (a) Restated Certificate of Incorporation of Rollins Truck Leasing Corp. as last amended on January 25, 1990 as filed with the Company's annual report on Form 10-K for the fiscal year ended September 30, 1992 is incorporated herein by reference.
(3) (b) By-Laws of Rollins Truck Leasing Corp. as last amended on November 25, 1987 as filed with the Company's annual report on Form 10-K for the fiscal year ended September 30, 1992 is incorporated herein by reference.
(4) (a) Collateral Trust Indenture dated as of March 21, 1983, between RLC CORP. (now known as Rollins Truck Leasing Corp.) and Bank of America Illinois (formerly Continental Illinois National Bank and Trust Company of Chicago), as Trustee, as filed with the Company's Registration Statement No. 33-40476 on Form S-3 dated May 10, 1991, is incorporated herein by reference.
(4) (b) Third Supplemental Collateral Trust Indenture dated February 20, 1986 to the Collateral Trust Indenture dated March 21, 1983 between RLC CORP. (now known as Rollins Truck Leasing Corp.) and Bank of America Illinois (formerly Continental Illinois National Bank and Trust Company of Chicago), as Trustee, as filed with the Company's Registration Statement No. 33-40476 on Form S-3 dated May 10, 1991, is incorporated herein by reference.
(4) (c) Eighth Supplemental Collateral Trust Indenture dated May 15, 1990 to the Collateral Trust Indenture dated March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986, between Rollins Truck Leasing Corp. and Bank of America Illinois (formerly Continental Bank, N.A.), as Trustee, as filed with the Company's Registration Statement No. 33-67682 on Form S-3 dated August 20, 1993 is incorporated herein by reference.
(4) (d) Ninth Supplemental Collateral Trust Indenture dated December 1, 1991 to the Collateral Trust Indenture dated March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986 and by an Eighth Supplemental Indenture dated May 15, 1990, between Rollins Truck Leasing Corp. and Bank of America Illinois (formerly Continental Bank, N.A.), as Trustee, as filed with the Company's report on Form 8-K dated December 12, 1991, is incorporated herein by reference.
(4) (e) Tenth Supplemental Collateral Trust Indenture dated April 28, 1992 to the Collateral Trust Indenture dated March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986 and by an Eighth Supplemental Indenture dated May 15, 1990, between Rollins Truck Leasing Corp. and Bank of America Illinois (formerly Continental Bank, N.A.), as Trustee, as filed with the Company's report on Form 8-K dated April 28, 1992, is incorporated herein by reference.
(4) (f) Eleventh Supplemental Collateral Trust Indenture dated March 15, 1993 to the Collateral Trust Indenture dated March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986 and by an Eighth Supplemental Indenture dated May 15, 1990, between Rollins Truck Leasing Corp. and Bank of America Illinois (formerly Continental Bank, N.A.), as Trustee, as filed with the Company's report on Form 8-K dated March 30, 1993, is incorporated herein by reference.
(4) (g) Twelfth Supplemental Collateral Trust Indenture dated March 15, 1994 to the Collateral Trust Indenture dated March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986 and by an Eighth Supplemental Indenture dated May 15, 1990, between Rollins Truck Leasing Corp. and Bank of America Illinois (formerly Continental Bank, N.A.), as Trustee, as filed with the Company's report on Form 8-K dated March 21, 1994, is incorporated herein by reference.
(4) (h) Thirteenth Supplemental Collateral Trust Indenture dated March 15, 1995 to the Collateral Trust Indenture dated March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986 and by an Eighth Supplemental Indenture dated May 15, 1990, between Rollins Truck Leasing Corp. and Bank of America Illinois (formerly Continental Bank, N.A.), as Trustee, as filed with the Company's report on Form 10-Q dated April 26, 1995, is incorporated herein by reference.
(4) (i) Fourteenth Supplemental Collateral Trust Indenture dated May 15, 1995 to the Collateral Trust Indenture dated March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986 and by an Eighth Supplemental Indenture dated May 15, 1990, between Rollins Truck Leasing Corp. and Bank of America Illinois (formerly Continental Bank, N.A.), as Trustee, as filed with the Company's report on Form 8-K dated May 16, 1995 is incorporated herein by reference.
(4) (j) Fifteenth Supplemental Collateral Trust Indenture dated March 15, 1996 to the Collateral Trust Indenture dated March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986 and by an Eighth Supplemental Indenture dated May 15, 1990, between Rollins Truck Leasing Corp. and First Trust of Illinois, National Association, as Trustee, as filed with the Company's report on Form 10-Q dated April 24, 1996, is incorporated herein by reference.
(4) (k) Sixteenth Supplemental Collateral Trust Indenture dated August 7, 1996 to the Collateral Trust Indenture dated March 21, 1983 as supplemented and amended by a Third Supplemental Indenture thereto dated as of February 20, 1986 and by an Eighth Supplemental Indenture dated May 15, 1990, between Rollins Truck Leasing Corp. and First Trust of Illinois, National Assocation, as Trustee, as filed with the Company's report on Form 8-K dated August 7, 1996 is incorporated herein by reference.
(4) (l) RLC CORP. (now known as Rollins Truck Leasing Corp.) Rights Agreement dated as of June 14, 1989 as filed as an Exhibit to Registration Statement on Form 8-A filed by Registrant on June 15, 1989 is incorporated herein by reference.
(10) (a) RLC CORP. (now known as Rollins Truck Leasing Corp.) 1982 Incentive Stock Option Plan, as filed with the Company's Proxy Statement for the Annual Meeting of Shareholders held on January 27, 1983, is incorporated herein by reference.
(10) (b) RLC CORP. (now known as Rollins Truck Leasing Corp.) 1986 Stock Option Plan, as filed with the Company's Proxy Statement for the Annual Meeting of Shareholders held on January 29, 1987, is incorporated herein by reference.
(10) (c) Rollins Truck Leasing Corp. 1993 Stock Option Plan, as filed with the Company's Proxy Statement for the Annual Meeting of Shareholders held on January 27, 1994, is incorporated herein by reference.
(21) Rollins Truck Leasing Corp. Subsidiaries at September 30, 1996.
(23) Consent of KPMG Peat Marwick LLP, Independent Auditors, for incorporation by reference in Registration Statement No. 33- 67682 filed on Form S-3.
(27) Rollins Truck Leasing Corp. Financial Data Schedule at September 30, 1996.
(b) Reports on Form 8-K.
On August 7, 1996, a report on From 8-K was filed in connection with the sale of $60,000,000 of the Company's 6 7/8% Collateral Trust Debentures, Series Q, due August 1, 2001, which were sold through Merrill, Lynch, Pierce, Fenner & Smith Incorporated, sole underwriter under the terms of an Underwriting Agreement which was filed as an Exhibit to the Form 8-K and pursuant to Registration Statement No. 33-67682 filed with the Securities and Exchange Commission on August 20, 1993 and which was declared effective on September 8, 1993.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATED: November 26, 1996 ROLLINS TRUCK LEASING CORP. (Registrant)
BY: /s/ John W. Rollins, Jr. John W. Rollins, Jr. President and Chief Operating Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
/s/ Patrick J. Bagley Vice President-Finance and November , 1996 Patrick J. Bagley Treasurer Chief Financial Officer Chief Accounting Officer
/s/ John W. Rollins Chairman of the Board and November , 1996 John W. Rollins Chief Executive Officer
/s/ Gary W. Rollins Director November , 1996 Gary W. Rollins
/s/ Henry B. Tippie Chairman of the Executive November , 1996 Henry B. Tippie Committee and Vice Chairman of the Board
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
(1) Consolidated Page(s) Independent Auditors' Report on Financial Statements and Financial Statement Schedules 12
Consolidated Statement of Earnings for the years ended September 30, 1996, 1995 and 1994 13
Consolidated Balance Sheet at September 30, 1996 and 1995 14
Consolidated Statement of Cash Flows for the years ended September 30, 1996, 1995 and 1994 15
Notes to the Consolidated Financial Statements 16 to 23
(2) Financial Statement Schedules
Rollins Truck Leasing Corp. (Parent) Schedule I - Condensed Financial Information
Balance Sheet at September 30, 1996 and 1995 24
Statement of Earnings for the years ended September 30, 1996, 1995 and 1994 25
Statement of Cash Flows for the years ended September 30, 1996, 1995 and 1994 26
Notes to the Financial Statements 27
Rollins Truck Leasing Corp. and Subsidiaries Consolidated
Schedule II - Valuation and Qualifying Accounts for the years ended September 30, 1996, 1995 and 1994 28
Any financial statement schedules otherwise required have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. Independent Auditors' Report
The Shareholders and Board of Directors Rollins Truck Leasing Corp.
We have audited the consolidated financial statements of Rollins Truck Leasing Corp. and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Rollins Truck Leasing Corp. and subsidiaries as of September 30, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended September 30, 1996, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Philadelphia, Pennsylvania October 22, 1996
CONSOLIDATED STATEMENT OF EARNINGS
Year Ended September 30, 1996 1995 1994 Revenues $513,779,000 $482,612,000 $450,903,000 Expenses: Operating 211,919,000 194,073,000 183,222,000 Depreciation 158,407,000 146,777,000 130,512,000 Gain on sale of property and equipment (7,950,000) (12,657,000) (8,530,000) Selling and administrative 47,995,000 43,146,000 42,473,000 410,371,000 371,339,000 347,677,000
Operating earnings 103,408,000 111,273,000 103,226,000 Interest income - 272,000 593,000 Interest expense (47,481,000) (44,453,000) (37,429,000) Earnings before income taxes 55,927,000 67,092,000 66,390,000 Income taxes 21,811,000 25,756,000 26,562,000
Net earnings $ 34,116,000 $ 41,336,000 $ 39,828,000
Earnings per share $ .78 $ .91 $ .86
Average common shares and equivalents outstanding 43,730,000 45,365,000 46,310,000
The Notes to the Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED BALANCE SHEET
September 30, 1996 1995 ASSETS Current assets Cash $ 31,207,000 $ 22,708,000 Accounts receivable, net of allowance for doubtful accounts: 1996-$1,928,000; 1995-$1,635,000 62,389,000 56,946,000 Inventories 9,124,000 8,612,000 Prepaid expenses 14,195,000 14,366,000 Refundable income taxes 897,000 1,667,000 Deferred income taxes 5,960,000 6,241,000 Total current assets 123,772,000 110,540,000 Equipment on operating leases, net 784,346,000 727,893,000 Other property and equipment, net 198,681,000 171,343,000 Excess of cost over net assets of businesses acquired 12,497,000 11,677,000 Other assets 5,916,000 5,576,000 Total assets $1,125,212,000 $1,027,029,000
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities (excluding equipment financing obligations) Accounts payable $ 8,759,000 $ 8,115,000 Accrued liabilities 44,733,000 43,167,000 Current maturities of long-term debt 124,000 150,000 Total current liabilities 53,616,000 51,432,000 Equipment financing obligations including maturities due within one year: 1996-$75,047,000; 1995-$21,469,000 640,854,000 573,554,000 Long-term debt 508,000 632,000 Other liabilities 11,375,000 10,028,000 Deferred income taxes 134,811,000 115,830,000
Commitments and contingent liabilities (see Notes to the Consolidated Financial Statements)
Shareholders' equity: Common stock, $1 par value, outstanding: 1996-43,383,935 shares; 1995-44,954,679 shares 43,384,000 44,955,000 Additional paid-in capital - 11,453,000 Retained earnings 240,664,000 219,145,000 Total shareholders' equity 284,048,000 275,553,000 Total liabilities and shareholders' equity $1,125,212,000 $1,027,029,000
The Notes to the Consolidated Financial Statements are an integral part of these statements. CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended September 30, 1996 1995 1994 Cash flows from operating activities: Net earnings $ 34,116,000 $ 41,336,000 $ 39,828,000 Adjustments to reconcile earnings to net cash provided by operating activities: Depreciation and amortization 158,738,000 147,003,000 130,741,000 Net gain on sale of property and equipment (7,950,000) (12,657,000) (8,530,000) Changes in assets and liabilities: Notes and accounts receivable (5,443,000) 1,085,000 (3,114,000) Accounts payable and accrued liabilities 2,210,000 3,963,000 3,856,000 Current and deferred income taxes 20,032,000 18,956,000 12,946,000 Other, net 666,000 (1,165,000) (2,072,000) Net cash provided by operating activities 202,369,000 198,521,000 173,655,000
Cash flows from investing activities: Purchase of property and equipment (297,339,000)(318,983,000)(297,492,000) Proceeds from sales of equipment 63,090,000 70,013,000 58,376,000 Excess of cost over net assets of business acquired (1,150,000) - - Net cash used in investing activities (235,399,000)(248,970,000)(239,116,000)
Cash flows from financing activities: Proceeds of equipment financing obligations 171,406,000 239,128,000 177,126,000 Repayment of equipment financing obligations (104,106,000)(163,939,000)(106,068,000) Repayment of long-term debt (150,000) (146,000) (203,000) Payment of dividends (7,974,000) (7,298,000) (6,092,000) Proceeds of stock options exercised 540,000 446,000 780,000 Common stock acquired and retired (18,187,000) (10,128,000) - Other - - (69,000) Net cash provided by financing activities 41,529,000 58,063,000 65,474,000
Net increase in cash 8,499,000 7,614,000 13,000 Cash beginning of period 22,708,000 15,094,000 15,081,000 Cash end of period $ 31,207,000 $ 22,708,000 $ 15,094,000
Supplemental information: Interest paid $ 47,008,000 $ 42,692,000 $ 36,425,000 Income taxes paid $ 1,779,000 $ 6,800,000 $ 13,616,000
The Notes to the Consolidated Financial Statements are an integral part of these statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Organization and Accounting Policies Organization - Rollins Truck Leasing Corp. is engaged primarily in full- service truck leasing and rentals and the provision and management of complete truck transportation and distribution systems. All of the Company's operations currently are conducted within the United States.
Consolidation - The consolidated financial statements include the accounts of all subsidiaries. Intercompany transactions and balances among these subsidiaries have been eliminated.
Revenue recognition - Lease, rental and other transportation service revenues are recognized over the terms of the respective contracts.
Earnings per share - Earnings per share are computed assuming the conversion of all potentially dilutive outstanding stock options.
Inventories - Inventories of transportation equipment parts and supplies are valued at the lower of first-in, first-out cost or market.
Property and equipment - Property and equipment is carried at cost, net of applicable allowances. Tires placed in service on new equipment are capitalized as part of the original equipment cost. Depreciation is provided on a straight-line basis. Depreciable lives for equipment on operating leases and other property and equipment range from 3 to 12 years and 3 to 45 years, respectively. The cost and related accumulated depreciation of property and equipment sold or retired are eliminated from the property accounts and the resulting gain or loss is reflected in the Consolidated Statement of Earnings. Repairs and maintenance are expensed as incurred. Replacement tires are expensed when placed in service. Major additions and improvements are capitalized and written off over the remaining depreciable lives of the assets.
Goodwill - The excess of cost over net assets of businesses acquired prior to October 30, 1970 amounting to $4,588,000 is not being amortized since its value, in management's opinion, has not diminished. The excess of cost over net assets of businesses acquired subsequently is being amortized on a straight-line basis over 40 years.
Leasing operations - Leasing operations consist of the long-term leasing and short-term rental of transportation equipment. All leases are classified as operating leases and expire on various dates during the next 13 years.
Claims and insurance reserves - The Company retains a specific portion of insurable risks with regard to public liability and workers' compensation claims. Retention levels are currently $500,000. Reserves are established for claims incurred plus an estimate for claims incurred but not reported. Reserve requirements are evaluated and established utilizing historical trends, the Company's experience, claim severity and other factors. Claims estimated to be paid within one year have been classified in accrued liabilities with the remainder included with other liabilities.
Use of estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair values of financial instruments - The carrying amounts reported in the balance sheet for current assets and current liabilities approximate their fair value at September 30, 1996.
Equipment on Operating Leases The Company's investment in equipment on operating leases is as follows:
September 30, 1996 1995 Transportation equipment $1,160,364,000 $1,058,643,000 Less accumulated depreciation (376,018,000) (330,750,000) $ 784,346,000 $ 727,893,000
The net gain on disposition of property and equipment, was $7,950,000 in 1996, $12,657,000 in 1995 and $8,530,000 in 1994.
Commitments for the purchase of transportation equipment amounted to $104,623,000 at September 30, 1996.
At September 30, 1996, minimum future revenues from non-cancelable leases are as follows:
Year Ending September 30, 1997 $219,476,000 1998 189,116,000 1999 149,436,000 2000 106,931,000 2001 68,432,000 Later years 59,054,000 Total future minimum lease revenues $792,445,000
Revenues include contingent rentals, which represent all commercial rental revenues and the mileage charges on full-service leases, of $184,799,000 in 1996, $183,399,000 in 1995 and $169,755,000 in 1994.
Other Property and Equipment The Company's other property and equipment accounts are as follows:
September 30, 1996 1995 Land $ 48,749,000 $ 40,117,000 Transportation service facilities 181,362,000 154,943,000 Other operating assets 36,500,000 34,580,000 Less accumulated depreciation (67,930,000) (58,297,000) $198,681,000 $171,343,000
Accrued Liabilities Accrued liabilities are as follows: September 30, 1996 1995 Employee compensation $ 9,534,000 $ 7,491,000 Interest 8,050,000 7,541,000 Taxes other than income 11,057,000 10,195,000 Insurance reserves 6,063,000 6,113,000 Environmental 1,868,000 2,817,000 Unbilled services and supplies 5,647,000 7,802,000 Other 2,514,000 1,208,000 $44,733,000 $43,167,000
Indebtedness Equipment financing obligations are as follows: September 30, 1996 1995 Revolving Credit Agreement $ 10,000,000 $ 14,000,000 Collateral Trust Debentures: Series H, 10.60%, due 1999 - 75,000,000 Series I, 10.35%, due 2000 50,000,000 50,000,000 Series J, 8 5/8 %, due 1998 30,000,000 30,000,000 Series K, 7 3/4 %, due 1997 50,000,000 50,000,000 Series L, 7 %, due 2003 70,000,000 70,000,000 Series M, 7 %, due 2001 60,000,000 60,000,000 Series N, 8.27%, due 2002 100,000,000 100,000,000 Series O, 7.25%, due 2005 50,000,000 50,000,000 Series P, 6.89%, due 2004 75,000,000 - Series Q, 6.87%, due 2001 60,000,000 - Other equipment financing obligations 85,854,000 74,554,000 $640,854,000 $573,554,000
Two banks provide an unsecured $100,000,000 line under a Revolving Credit Agreement ("the Revolver"). At the option of the banks, the Revolver and the Collateral Trust Debentures may be secured by certain leasing equipment. Termination of the Revolver would result in repayment of the outstanding balance over 60 months in equal installments; otherwise, no repayments are required unless the financing value of the eligible equipment available as security falls below the outstanding loan balance. At September 30, 1996, interest rates on borrowings under the Revolver averaged 6.0%. The Revolver provides for the maintenance of specified financial ratios and restricts payments to the Company by a consolidated subsidiary. Net assets of all subsidiaries not restricted under the Revolver totaled $189,865,000 at September 30, 1996. Other equipment financing obligations due within one year totaled $25,047,000 at September 30, 1996 with the balance payable through 2005. Interest rates on these obligations averaged 6.3% at September 30, 1996. The other equipment financing obligations are collateralized by certain leasing equipment. The Collateral Trust Debentures are secured by notes from a subsidiary.
Equipment financing obligations due within one year are not classified as current liabilities as the Company intends and has the ability to refinance them on a long-term basis through available credit facilities.
Based on published bid prices, at September 30, 1996, the estimated fair value of the Company's Collateral Trust Debentures was $550,088,000 compared to the recorded book amount of $545,000,000. The fair value of the remaining $95,854,000 of equipment indebtedness approximates its recorded amount.
Long-term debt consists of real estate and other obligations payable in installments over various periods to 2001, at interest rates ranging from 8.8% to 9.0%. Land and buildings with a carrying value of $1,535,000 are pledged as collateral.
The aggregate amounts of maturities for all indebtedness over the next five years are as follows: 1997-$75,171,000; 1998-$21,488,000; 1999- $45,043,000; 2000-$58,301,000 and 2001-$124,168,000.
Pension Plans The Company maintains a noncontributory pension plan for eligible employees not covered by pension plans under collective bargaining agreements. Pension costs are funded in accordance with the provisions of the Internal Revenue Code. The Company also maintains a nonqualified, noncontributory defined benefit pension plan for certain employees to restore pension benefits reduced by federal income tax regulations. The cost associated with the plan is determined using the same actuarial methods and assumptions as those used for the Company's qualified pension plan.
The following table sets forth the funded status and the amount recognized in the Company's balance sheet for the plans:
September 30, 1996 1995 Actuarial present value of accumulated benefit obligation: Vested $31,114,000 $27,081,000 Non-vested 1,279,000 1,267,000 $32,393,000 $28,348,000 Projected benefit obligation $38,227,000 $33,734,000 Plan assets at market value 39,167,000 35,230,000 Plan assets in excess of projected benefit obligation (940,000) (1,496,000) Unrecognized gain 6,352,000 6,929,000 Unrecognized prior service costs (717,000) (775,000) Unrecognized overfunding at adoption 281,000 351,000 Accrued pension liability $ 4,976,000 $ 5,029,000
At September 30, 1996, the assets of the pension plans were invested 76% in equity securities, 22% in fixed income securities and the balance in other short-term interest bearing accounts.
The discount rate and the rate of assumed compensation increase for all three years were 8.0% and 5.0%, respectively. The expected long-term rate of return on assets was 9.0% for 1996 and 1995 and 9.5% for 1994.
The components of net periodic pension cost are as follows:
Year Ended September 30, 1996 1995 1994 Service cost $2,555,000 $2,175,000 $2,283,000 Interest cost 2,727,000 2,371,000 2,152,000 Return on plan assets (3,659,000) (7,420,000) (947,000) Net amortization and deferral 244,000 4,907,000 (1,580,000) Net periodic pension cost $1,867,000 $2,033,000 $1,908,000
Effective October 1, 1994, the Company established a defined contribution 401(k) plan which permits participation by substantially all employees not represented under a collective bargaining agreement.
The Company expensed payments to multi-employer pension plans required by collective bargaining agreements of $85,000 in 1996, $131,000 in 1995 and $172,000 in 1994. The actuarial present value of accumulated plan benefits and net assets available for benefits to employees under these plans are not available.
Shareholders' Equity Changes in the components of shareholders' equity are as follows:
$1 Par Value Additional Common Paid-in Retained Stock Capital Earnings Balance at September 30, 1993 $30,363,000 $35,016,000 $151,371,000 Net earnings 39,828,000 Dividends on common stock, $.13 per share (6,092,000) Three-for-two common stock split 15,252,000 (15,321,000) Exercise of stock options 156,000 624,000 Balance at September 30, 1994 45,771,000 20,319,000 185,107,000 Net earnings 41,336,000 Dividends on common stock, $.16 per share (7,298,000) Common stock acquired and retired (963,000) (9,165,000) Exercise of stock options 147,000 299,000 Balance at September 30, 1995 44,955,000 11,453,000 219,145,000 Net earnings 34,116,000 Dividends on common stock, $.18 per share (7,974,000) Common stock acquired and retired (1,746,000)(11,818,000) (4,623,000) Exercise of stock options 175,000 365,000 Balance at September 30, 1996 $43,384,000 $ - $240,664,000
The Company is authorized to issue 100,000,000 shares of its $1 Par Value Common Stock and 1,000,000 shares of Preferred Stock. The preferred shares are without par value, with terms and conditions of each issue as determined by the Board of Directors.
Each share of common stock includes one common stock purchase right ("Right") which is non-exercisable until certain defined events occur, including tender offers or the acquisition by a person or group of affiliated or associated persons of 20% of the Company's common stock. Upon the occurrence of certain defined events, the Right entitles the holder to purchase additional stock of the Company or stock of an acquiring company at a 50% discount. The Right expires on June 30, 1999 unless earlier redeemed by the Company at a price of $.0045 per Right.
The terms of a credit agreement restrict the Company's dividend payments to consolidated net earnings subsequent to September 30, 1984 subject to certain adjustments. At September 30, 1996, $187,050,000 of retained earnings was available for the payment of cash dividends.
Stock Option Plans Under the Company's stock option plans, options to purchase common stock of the Company may be granted to officers and key employees at not less than 100% of the fair market value at the date of grant. Option activity is as follows:
Year Ended September 30, 1996 1995 1994 Number of options: Outstanding at beginning of year 1,326,773 1,121,499 1,368,005 Granted 481,800 359,500 7,515 Exercised (175,256) (146,501) (226,321) Expired or canceled (50,571) (7,725) (27,700) Outstanding at September 30 1,582,746 1,326,773 1,121,499 At September 30: Options available for grant 518,385 954,014 1,305,789 Options exercisable 623,521 539,662 470,500
Per share prices: Options granted $9.50 to $10.50 $11.00 to $11.50 $12.08 Options exercised $2.39 to $ 7.56 $ 2.39 to $ 7.56 $ 2.39 to $7.56 Options outstanding $2.83 to $12.08 $ 2.39 to $12.08 $ 2.39 to $12.08
Lease Commitments The Company leases some of the premises and equipment used in its operations. Leases classified as operating leases expire on various dates during the next 18 years. Some of the leases are renewable at the Company's option. Minimum future rental payments required under operating leases having non-cancelable terms in excess of one year as of September 30, 1996 are as follows:
Year Ending September 30, 1997 $ 3,394,000 1998 2,899,000 1999 2,351,000 2000 1,899,000 2001 1,523,000 Later years 4,596,000 Total minimum payments required $16,662,000
Total rental expense for all operating leases except those with terms of a month or less was $7,604,000 in 1996, $7,560,000 in 1995 and $7,695,000 in 1994.
Income Taxes The tax provisions for the three years ended September 30, 1996 are comprised as follows:
Year Ended September 30, 1996 1995 1994 Current: Federal $ 2,514,000 $ 6,584,000 $ 8,692,000 State 15,000 1,128,000 2,796,000 Deferred: Federal 16,413,000 16,256,000 13,516,000 State 2,869,000 1,788,000 1,558,000 Total income taxes $21,811,000 $25,756,000 $26,562,000
A reconciliation of the tax provisions for the three years ended September 30, 1996 with amounts calculated by applying the statutory federal tax rate to earnings before income taxes for those years is as follows:
Year Ended September 30, 1996 1995 1994 Federal tax $19,574,000 $23,482,000 $23,236,000 State taxes, net of federal benefit 1,875,000 1,896,000 2,830,000 Other 362,000 378,000 496,000 Total income taxes $21,811,000 $25,756,000 $26,562,000
The tax effect of temporary differences and the tax credit carryforwards which comprise the current and non-current deferred tax amounts shown on the balance sheet are as follows: September 30 1996 1995 Depreciation $148,599,000 $124,775,000 Expenses deductible when paid (9,077,000) (9,198,000) Alternative minimum tax credit carryforward (11,335,000) (6,924,000) Other 664,000 936,000 Deferred income taxes, net $128,851,000 $109,589,000
At September 30, 1996, the Company had alternative minimum tax credit carryforwards of $11,335,000 which have no expiration date. The Company has no tax credit carryforwards for financial reporting purposes since all such credits have been considered in the determination of deferred tax amounts.
Environmental Regulation The Company is subject to certain regulations of the Environmental Protection Agency in that it stores and dispenses petroleum products. Most of these regulations address testing and replacement of underground tanks. The Company's adherence to these regulations is part of its normal business operations. These regulations have not had any material adverse effect upon the Company.
Commitments and Contingent Liabilities There are various routine claims and legal actions pending against the Company incidental to the ordinary operation of its business. The Company is of the opinion, based on the advice of counsel, that it is only remotely likely that the ultimate resolution of these claims and actions will be material.
Transactions with Related Parties Certain directors and officers of the Company are also directors and officers of Rollins Environmental Services, Inc. and Matlack Systems, Inc.
The Company sold materials (principally vehicle fuel) and services (including data processing services) and rented transportation equipment and office space to Rollins Environmental Services, Inc. The aggregate charges for these materials and services, which have been included in revenues or offset against operating expense, as appropriate, in the Consolidated Statement of Earnings, were $4,769,000 in 1996, $6,617,000 in 1995 and $6,551,000 in 1994.
The Company provided administrative services and rented office space to Matlack, Inc. for aggregate charges of $3,542,000 in 1996, $3,286,000 in 1995 and $2,949,000 in 1994, which have been included in revenues or offset against operating expense, as appropriate, in the Consolidated Statement of Earnings. Interest charges to Matlack, Inc., which have been offset against interest expense, were $272,000 in 1995 and $593,000 in 1994.
An officer of the Company is the trustee of an employee benefits trust which provides certain insurance and health care benefits to employees of the Company. Contributions to the trust, which were charged to operating or selling and administrative expense, as appropriate, were $10,892,000 in 1996, $9,099,000 in 1995 and $8,166,000 in 1994.
In the opinion of management of the Company, the foregoing transactions were effected at rates which approximate those which the Company would have realized or incurred had such transactions been effected with independent third parties.
Quarterly Results (Unaudited) December March June September 1996 31 31 30 30 Revenues $125,021,000 $122,192,000 $130,723,000 $135,843,000 Gross profit $ 37,293,000 $ 33,232,000 $ 39,347,000 $ 41,531,000 Earnings before income taxes $ 13,586,000 $ 8,833,000 $ 15,903,000 $ 17,605,000 Net earnings $ 8,356,000 $ 5,432,000 $ 9,742,000 $ 10,586,000 Earnings per share $ .19 $ .12 $ .22 $ .25
Revenues $119,079,000 $116,671,000 $122,726,000 $124,136,000 Gross profit $ 39,807,000 $ 36,924,000 $ 40,037,000 $ 37,651,000 Earnings before income taxes $ 19,060,000 $ 15,356,000 $ 17,810,000 $ 14,866,000 Net earnings $ 11,509,000 $ 9,273,000 $ 11,233,000 $ 9,321,000 Earnings per share $ .25 $ .20 $ .25 $ .21
SCHEDULE I - Condensed Financial Information
ROLLINS TRUCK LEASING CORP. BALANCE SHEET ($000 Omitted) Assets September 30, 1996 1995 Current assets (excluding notes receivable from subsidiaries) Cash $ 1,255 $ 860 Accounts receivable 14 59 Accounts receivable from subsidiaries* 4 14 Other current assets 141 146 Total current assets 1,414 1,079 Notes receivable from subsidiary* 545,000 485,000 Investments in subsidiaries, at equity* 282,202 262,291 Advances to subsidiaries* 15,832 16,830 Property and equipment, at cost, net of accumulated depreciation 1,100 908 Other assets 96 195 Total assets $845,644 $766,303
Liabilities and Shareholders' Equity Current liabilities Accounts payable to subsidiaries* $ 5 $ 29 Accounts payable to others 437 163 Accrued liabilities 494 488 Income taxes payable 1,785 1,500 Total current liabilities 2,721 2,180 Bank Master Note Obligation 3,000 - Collateral Trust Debentures 10.60 % Series H, due 1999 - 75,000 10.35 % Series I, due 2000 50,000 50,000 8 5/8% Series J, due 1998 30,000 30,000 7 3/4% Series K, due 1997 50,000 50,000 7 % Series L, due 2003 70,000 70,000 7 % Series M, due 2001 60,000 60,000 8.27 % Series N, due 2002 100,000 100,000 7.25 % Series O, due 2005 50,000 50,000 6.89 % Series P, due 2004 75,000 - 6 7/8% Series Q, due 2001 60,000 - Advances from subsidiaries* 10,320 3,160 Other liabilities 215 - Deferred federal income taxes 340 410 Commitments and contingent liabilities (see Notes to the Financial Statements)
Shareholders' equity Common shares $1 Par Value, 100,000,000 shares authorized; issued and outstanding: 1996: 43,383,935; 1995: 44,954,679 43,384 44,955 Additional paid-in capital - 11,453 Retained earnings 240,664 219,145 Total shareholders' equity 284,048 275,553 Total liabilities and shareholders' equity $845,644 $766,303 * Eliminated in consolidation.
The Notes to the Financial Statements are an integral part of these statements. SCHEDULE I - Condensed Financial Information (continued)
ROLLINS TRUCK LEASING CORP. STATEMENT OF EARNINGS ($000 Omitted)
Year Ended September 30, 1996 1995 1994
Revenues: Dividends from subsidiaries $12,300 $12,501 $ 1,800 Other income 6,322 5,301 4,502 18,622 17,802 6,302
Expenses: Administrative 2,930 3,365 3,418 Depreciation and amortization 254 220 193 Loss on sale of property and equipment - 9 11 3,184 3,594 3,622
Earnings before interest and income taxes 15,438 14,208 2,680
Interest income 40,085 36,995 31,700 Interest expense (40,307) (36,995) (31,700)
Earnings before income taxes 15,216 14,208 2,680
Income taxes 1,089 980 825
Net earnings of Rollins Truck Leasing Corp. 14,127 13,228 1,855
Equity in undistributed net earnings of subsidiaries 19,989 28,108 37,973
Net earnings $34,116 $41,336 $39,828
The Notes to the Financial Statements are an integral part of these statements. SCHEDULE I - Condensed Financial Information (continued)
ROLLINS TRUCK LEASING CORP. STATEMENT OF CASH FLOWS ($000 Omitted) Year Ended September 30, 1996 1995 1994 Cash flows from operating activities: Earnings prior to equity in subsidiaries' undistributed earnings $ 14,127 $ 13,228 $ 1,855
Adjustments to reconcile earnings to net cash provided by operating activities: Depreciation and amortization 254 220 193 Loss on sale of property and equipment - 9 11 Changes in assets and liabilities: Accounts receivable 55 70 28 Accounts payable and accrued liabilities 256 (92) 9 Current and deferred income taxes 215 767 275 Other, net 318 (235) (252) Net cash provided by operating activities 15,225 13,967 2,119
Cash flows from investing activities: Purchase of equipment (367) (148) (152) Proceeds from sale of equipment - 12 - Net cash used in investing activities (367) (136) (152)
Cash flows from financing activities: Proceeds of equipment financing 144,300 150,000 60,000 Notes receivable from subsidiaries (135,000) (150,000)(56,300) Repayment of note by subsidiary 75,000 45,600 - Repayment of note by Matlack, Inc. - 6,000 - Repayment of equipment financing (81,300) (50,000) - Payment of dividends (7,974) (7,298) (6,092) Proceeds of stock options exercised 540 446 780 Common stock acquired and retired (18,187) (10,128) - Subsidiary advances and payments 8,158 1,710 - Other - - (69) Net cash used in financing activities (14,463) (13,670) (1,681)
Net increase in cash 395 161 286
Cash beginning of period 860 699 413 Cash end of period $ 1,255 $ 860 $ 699
Supplemental information: Interest paid $ 39,377 $ 35,291 $31,525 Income taxes paid $ 1,655 $ 6,710 $10,660
The Notes to the Financial Statements are an integral part of these statements. SCHEDULE I - Condensed Financial Information (continued)
ROLLINS TRUCK LEASING CORP. Notes to the Financial Statements
Accounting Policies The accounting policies of the Registrant and its subsidiaries are set forth on page 16 of this 1996 Annual Report on Form 10-K.
The Company's principal sources of earnings are dividends and management fees paid by its subsidiaries. Certain loan agreements restrict payments to the Company by its subsidiaries. Net assets of subsidiaries not restricted under such loan agreements totaled $189,865,000 at September 30, 1996. The Company also realizes cash receipts by assessing subsidiaries for federal taxes on income and expends cash in payment of such taxes on a consolidated basis. Tax assessments are based on the amount of federal income taxes which would be payable (recoverable) by each subsidiary company based on its current year's earnings (loss) reduced by that subsidiary's applicable portion of any consolidated carryforward or carryback of net operating losses, investment tax credits, alternative minimum tax credits or similar items utilized currently in the consolidated federal income tax return.
Interest income on notes receivable from a subsidiary which are pledged to secure the Collateral Trust Debentures (described on page 18 of this 1996 Annual Report on Form 10-K) was $40,085,000, $36,995,000 and $31,700,000 in 1996, 1995 and 1994, respectively.
Commitments and Contingencies The Company is obligated to an affiliated company for $283,000 annually ($1,468,000 in the aggregate) of future rentals under a lease to 2001. Rent expense was $345,000 in 1996, $398,000 in 1995 and $391,000 in 1994.
Commitments of the Company have been collateralized by bank letters of credit issued on behalf of the Company in the amount of $4,950,000.
The aggregate amounts of maturities for the Collateral Trust Debentures during the next five years are $50,000,000 in 1997, $30,000,000 in 1999, $50,000,000 in 2000 and $120,000,000 in 2001.