-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K8dw9tJngzIsuQTHOVWd+iQ7oBKsaFh14hfXia0AaVmGeboaBlr85noYs31+XRVf zomhUSJVnCTiq91liEj94Q== 0000950152-01-001071.txt : 20010223 0000950152-01-001071.hdr.sgml : 20010223 ACCESSION NUMBER: 0000950152-01-001071 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010214 FILER: COMPANY DATA: COMPANY CONFORMED NAME: REYNOLDS & REYNOLDS CO CENTRAL INDEX KEY: 0000083588 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 310421120 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10147 FILM NUMBER: 1542650 BUSINESS ADDRESS: STREET 1: 115 S LUDLOW ST CITY: DAYTON STATE: OH ZIP: 45402 BUSINESS PHONE: 9374852000 MAIL ADDRESS: STREET 1: P.O. BOX 2608 CITY: DAYTON STATE: OH ZIP: 45401 10-Q 1 l86530ae10-q.txt THE REYNOLDS & REYNOLDS COMPANY 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED DECEMBER 31, 2000 COMMISSION FILE NO. 1-10147 THE REYNOLDS AND REYNOLDS COMPANY OHIO 31-0421120 (State of incorporation) (IRS Employer Identification No.) 115 SOUTH LUDLOW STREET DAYTON, OHIO 45402 (Address of principal executive offices) (937) 485-2000 (Telephone No.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 ---- ---- On February 8, 2001, 71,719,920 Class A common shares and 20,000,000 Class B common shares were outstanding. 2 THE REYNOLDS AND REYNOLDS COMPANY TABLE OF CONTENTS
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Statements of Consolidated Income For the Three Months Ended December 31, 2000 and 1999 3 Condensed Consolidated Balance Sheets As of December 31, 2000 and September 30, 2000 4 Condensed Statements of Consolidated Cash Flows For the Three Months Ended December 31, 2000 and 1999 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations For the Three Months Ended December 31, 2000 and 1999 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13
2 3 THE REYNOLDS AND REYNOLDS COMPANY STATEMENTS OF CONSOLIDATED INCOME FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999 (In thousands except per share data)
2000 1999 ------------- ------------- Net Sales and Revenues Automotive Solutions Services $146,133 $119,631 Products 87,135 91,688 ------------- ------------- Total Automotive Solutions 233,268 211,319 Financial services 10,218 9,764 ------------- ------------- Total net sales and revenues 243,486 221,083 ------------- ------------- Costs and Expenses Automotive Solutions Cost of sales Services 51,947 42,186 Products 45,802 49,007 ------------- ------------- Total cost of sales 97,749 91,193 Selling, general and administrative expenses 100,851 80,636 Financial services 4,394 4,849 ------------- ------------- Total costs and expenses 202,994 176,678 ------------- ------------- Operating Income 40,492 44,405 ------------- ------------- Other Charges (Income) Interest expense 1,447 2,137 Interest income (3,302) (1,233) Equity in net losses of affiliated companies 1,912 651 Other 210 17 ------------- ------------- Total other charges 267 1,572 ------------- ------------- Income Before Income Taxes 40,225 42,833 Income Taxes 16,346 17,774 ------------- ------------- Income From Continuing Operations 23,879 25,059 Income From Discontinued Operations 0 6,241 ------------- ------------- Net Income $23,879 $31,300 ============= ============= Basic Earnings Per Common Share Income From Continuing Operations $0.32 $0.32 Income From Discontinued Operations $0.00 $0.08 Net Income $0.32 $0.41 Average Number of Common Shares Outstanding 74,081 77,156 Diluted Earnings Per Common Share Income From Continuing Operations $0.32 $0.32 Income From Discontinued Operations $0.00 $0.08 Net Income $0.32 $0.40 Average Number of Common Shares Outstanding 75,111 78,783 Cash Dividends Declared Per Common Share $0.11 $0.11
See Notes to Condensed Consolidated Financial Statements. 3 4 THE REYNOLDS AND REYNOLDS COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2000 AND SEPTEMBER 30, 2000 (In thousands)
12/31/00 9/30/00 ---------------- ---------------- AUTOMOTIVE SOLUTIONS ASSETS Current Assets Cash and equivalents $133,110 $205,455 Accounts receivable 131,128 127,314 Inventories 14,968 15,287 Other current assets 33,567 35,490 ---------------- ---------------- Total current assets 312,773 383,546 Property, Plant and Equipment, less accumulated depreciation of $171,233 at 12/31/00 and $166,235 at 9/30/00 146,711 138,108 Goodwill 41,386 31,061 Other Intangible Assets 158,632 158,054 Other Assets 87,305 85,395 ---------------- ---------------- Total Automotive Solutions Assets 746,807 796,164 ---------------- ---------------- FINANCIAL SERVICES ASSETS Finance Receivables 422,312 420,588 Cash and Other Assets 868 541 ---------------- ---------------- Total Financial Services Assets 423,180 421,129 ---------------- ---------------- TOTAL ASSETS $1,169,987 $1,217,293 ================ ================ AUTOMOTIVE SOLUTIONS LIABILITIES Current Liabilities $172,358 $194,665 Long-Term Debt 112,079 111,124 Other Liabilities 97,422 93,350 ---------------- ---------------- Total Automotive Solutions Liabilities 381,859 399,139 ---------------- ---------------- FINANCIAL SERVICES LIABILITIES Notes Payable 211,552 212,176 Other Liabilities 109,525 107,484 ---------------- ---------------- Total Financial Services Liabilities 321,077 319,660 ---------------- ---------------- SHAREHOLDERS' EQUITY Capital Stock 122,357 124,872 Other Comprehensive Income (7,534) (7,139) Retained Earnings 352,228 380,761 ---------------- ---------------- Total Shareholders' Equity 467,051 498,494 ---------------- ---------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,169,987 $1,217,293 ================ ================
See Notes to Condensed Consolidated Financial Statements. 4 5 THE REYNOLDS AND REYNOLDS COMPANY CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999 (In thousands)
2000 1999 -------------- ------------- AUTOMOTIVE SOLUTIONS Cash Flows Provided By Operating Activities $38,501 $30,677 -------------- ------------- Cash Flows Provided By (Used For) Investing Activities Business combinations (9,509) Capital expenditures (15,678) (19,101) Net proceeds from asset sales 400 1,569 Capitalization of software licensed to customers (1,704) (5,297) Repayments from (advances to) financial services (745) 3,170 -------------- ------------- Net cash flows used for investing activities (27,236) (19,659) -------------- ------------- Cash Flows Provided By (Used For) Financing Activities Additional borrowings 762 Principal payments on debt (2,215) Capital stock issued 1,555 1,125 Capital stock repurchased (48,656) (19,885) -------------- ------------- Net cash flows used for financing activities (49,316) (17,998) -------------- ------------- Effect of Exchange Rate Changes on Cash 78 368 -------------- ------------- Net Cash Used for Discontinued Operations (34,372) (28,703) -------------- ------------- Decrease in Cash and Equivalents (72,345) (35,315) Cash and Equivalents, Beginning of Period 205,455 103,595 -------------- ------------- Cash and Equivalents, End of Period $133,110 $68,280 ============== ============= FINANCIAL SERVICES Cash Flows Provided By Operating Activities $5,831 $6,957 -------------- ------------- Cash Flows Provided By (Used For) Investing Activities Finance receivables originated (44,628) (33,747) Collections on finance receivables 38,897 32,725 -------------- ------------- Net cash flows used for investing activities (5,731) (1,022) -------------- ------------- Cash Flows Provided By (Used For) Financing Activities Additional borrowings 12,350 26,512 Principal payments on debt (12,974) (29,592) Advances from (repayments to) information systems 745 (3,170) -------------- ------------- Net cash flows provided by (used for) financing activities 121 (6,250) -------------- ------------- Increase (Decrease) in Cash and Equivalents 221 (315) Cash and Equivalents, Beginning of Period 456 675 -------------- ------------- Cash and Equivalents, End of Period $677 $360 ============== =============
See Notes to Condensed Consolidated Financial Statements. 5 6 THE REYNOLDS AND REYNOLDS COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands except per share data) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The balance sheet as of September 30, 2000 is condensed financial information taken from the audited balance sheet. The interim financial statements are unaudited. In the opinion of management, the accompanying interim financial statements contain all significant adjustments (which consist only of normal recurring adjustments) necessary to present fairly the company's financial position, results of operations and cash flows for the periods presented. (2) INVENTORIES 12/31/00 9/30/00 ------------- -------------- Finished products $14,190 $14,360 Work in process 250 480 Raw materials 528 447 ------------- -------------- Total inventories $14,968 $15,287 ============= ============== (3) COMPREHENSIVE INCOME 2000 1999 ------------- ------------- Net income $23,879 $31,300 Foreign currency translation adjustment 78 368 Cumulative effect of accounting change 15 Net unrealized losses on derivative contracts (488) ------------- ------------- Comprehensive income $23,484 $31,668 ============= ============= (4) RESTRUCTURING CHARGES During fiscal year 2000, the company recorded a pre-tax restructuring charge of $10,560. This charge consisted of $4,751 of employee termination benefits, $4,715 of retirement costs and $1,094 of lease obligations. Employee termination benefits represent severance and outplacement benefits for 252 employees, 135 of which were in administrative positions. The remaining 117 employees worked at the Oklahoma City manufacturing facility that was closed during the first quarter of fiscal year 2001. Through December 31, 2000, 186 former employees began receiving severance payments. Retirement costs represent pension and other postretirement benefits in excess of regular plan benefits for 20 employees, including several executives. These incremental benefits will be paid along with normal pension and other postretirement benefits. Lease obligations represent remaining lease payments in excess of sublease rentals for 38 sales offices vacated by the company. Activity related to restructuring accruals was as follows: 9/30/00 12/31/00 Balances Payments Balances ------------- ------------- -------------- Severance and related costs $3,960 $1,459 $2,501 Lease obligations $1,006 $81 $925 (5) BUSINESS COMBINATION In November 2000, the company purchased eCustomerCentric Solutions, Inc., a.k.a. DealerKid, a premier provider of electronic customer marketing and relationship management software and services for automotive retailers in the United States and Canada. Privately held DealerKid had revenues of about $2,000 in 2000. The purchase price of $10,452 was paid with $9,509 of cash from existing balances and the issuance of a $943 note payable. This business combination was accounted for as a purchase and the accounts of DealerKid were included in the financial statements since the acquisition date. In connection with this business combination the company recorded goodwill of $11,051, based on a preliminary allocation of the purchase price. Goodwill is being amortized on a straight-line basis over five years. 6 7 (6) ACCOUNTING CHANGE In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 2000, the FASB amended certain provisions of that statement by issuing SFAS Statement No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities." These statements require all derivatives to be recognized as either assets or liabilities in the statement of financial position and to measure those instruments at fair value. Gains or losses resulting from changes in fair values of derivatives are recorded either as a separate component of shareholders' equity or in the income statement depending upon whether the instruments meet the criteria for hedge accounting. Effective October 1, 2000, the company adopted the provisions of these statements. The company has determined that its derivative instruments meet the criteria for cash flow hedge accounting. In the ordinary course of business, the company borrows cash to fund investments in finance receivables from the sale of the company's products. The company attempts to limit its interest rate exposure between the interest earned on fixed rate finance receivables and the interest paid on variable rate financing agreements through the use of interest rate management agreements. Interest rate swaps provide for interest to be received on notional amounts at variable rates and provide for interest to be paid on the same notional amounts at fixed rates. Fixed interest rates do not change over the life of the agreements. Variable interest rates are reset at least every 90 days and are based on LIBOR or commercial paper indices and are settled with counterparties at that time. The fair value of the company's derivative instruments was a $25 asset at October 1, 2000, which was recorded as a cumulative effect of accounting change, and a $789 liability at December 31, 2000. This liability was included in Financial Services' other liabilities on the consolidated balance sheet. The adjustments to record the cumulative effect of accounting change and the net change in the fair value during the period ended December 31, 2000, was recorded, net of income taxes, in other comprehensive income. All existing cash flow hedges were 100% effective. As a result, there was no current impact to earnings because of hedge ineffectiveness. (7) CONTINGENCIES The U.S. Environmental Protection Agency (EPA) has designated the company as one of a number of potentially responsible parties (PRP) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) at an environmental remediation site. The EPA has contended that any company linked to a CERCLA site is potentially liable for all response costs under the legal doctrine of joint and several liability. This environmental remediation site involves a municipal waste disposal facility owned and operated by four municipalities. The company joined a PRP coalition and is sharing remedial investigation and feasibility study costs with other PRPs. During fiscal year 1994, the PRP coalition received an engineering evaluation/cost analysis of the presumed remedy for the site from its private contractor. However, because the EPA has not yet selected a remedy, potential remediation costs remain uncertain. Remediation costs for a typical CERCLA site on the National Priorities List average about $30,000. The engineering evaluation/cost analysis was consistent with this average. During fiscal year 1996, an agreement was reached whereby the state of Connecticut will contribute $8,000 towards remediation costs. Preliminary remediation continued through December 31, 2000, using Connecticut's contribution. During the fourth quarter of fiscal year 2000, the company was also named a defendant in a cost recovery lawsuit in Dayton, Ohio, regarding another environmental remediation site. Discovery in that lawsuit is in its early stages. Consequently, it is too early to determine the company's liability exposure. The company believes that the reasonably foreseeable resolution of these two matters will not have a material adverse effect on the financial statements. (8) ACCOUNTING STANDARD In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements", which provides guidance on applying generally accepted accounting principles for recognizing revenue. SAB No. 101, as amended, is effective for the fourth quarter of fiscal year 2001. The company is reviewing the impact of SAB No. 101, and does not believe that its adoption will have a material effect on the company's financial statements. 7 8 (9) CASH FLOW STATEMENTS Reconciliation of net income to net cash provided by operating activities.
2000 1999 --------------- --------------- AUTOMOTIVE SOLUTIONS Net Income $20,375 $28,355 Depreciation and Amortization 11,805 8,656 Deferred Income Taxes 764 414 Deferred Income Taxes Transferred to Financial Services (1,530) 529 Income from Discontinued Operations (6,241) Losses on Sales of Assets 245 7 Changes in Operating Assets and Liabilities Accounts Receivable 1,075 13,125 Inventories 319 (9,447) Prepaid Expenses and Other Current Assets 540 4,534 Intangible and Other Assets (2,721) (2,269) Accounts Payable 8,536 481 Accrued Liabilities (5,133) (9,815) Other Liabilities 4,226 2,348 --------------- --------------- Net Cash Provided by Operating Activities $38,501 $30,677 =============== =============== FINANCIAL SERVICES Net Income $3,504 $2,945 Deferred Income Taxes (2,508) 2,663 Deferred Income Taxes Transferred from Information Systems 1,530 (529) Changes in Receivables, Other Assets and Other Liabilities 3,305 1,878 --------------- --------------- Net Cash Provided by Operating Activities $5,831 $6,957 =============== =============== (10) BUSINESS SEGMENTS 2000 1999 --------------- --------------- NET SALES AND REVENUES Retail Management Solutions $140,656 $140,442 Transformation Solutions 49,692 25,551 Documents 42,920 45,326 Financial Services 10,218 9,764 --------------- --------------- Total Net Sales and Revenues $243,486 $221,083 =============== =============== OPERATING INCOME Retail Management Solutions $25,724 $28,935 Transformation Solutions $1,177 $907 Documents $7,767 $9,648 Financial Services $5,824 $4,915 --------------- --------------- Total Operating Income $40,492 $44,405 =============== =============== 12/31/00 9/30/00 --------------- --------------- ASSETS Automotive Solutions $746,807 $796,164 Financial Services 423,180 421,129 --------------- --------------- Total Assets $1,169,987 $1,217,293 =============== ===============
8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2000 AND 1999 (In thousands except per share data) RESULTS OF OPERATIONS CONSOLIDATED SUMMARY
2000 1999 Change % Change -------------------------------------------- Net sales and revenues $243,486 $221,083 $22,403 10% Gross profit $135,519 $120,126 $15,393 13% Operating income $40,492 $44,405 ($3,913) -9% % of revenues 16.6% 20.1% Income from continuing operations $23,879 $25,059 ($1,180) -5% Discontinued operations $0 $6,241 ($6,241) -100% Net income $23,879 $31,300 ($7,421) -24% Basic earnings per share Income from continuing operations $0.32 $0.32 $0.00 0% Net income $0.32 $0.41 ($0.09) -22% Diluted earnings per share Income from continuing operations $0.32 $0.32 $0.00 0% Net income $0.32 $0.40 ($0.08) -20%
Consolidated revenues grew 10% in the first quarter. Excluding the net effect of acquisitions and divestitures, sales increased 2% over last year. Each segment discussion contains further analysis of sales and gross profit. Consolidated operating income was 16.6% of revenues versus 20.1% last year. The decline in operating margins resulted primarily from higher selling, general and administrative (SG&A) expenses and the May 2000 acquisition of HAC Group LLC, which had lower operating margins. SG&A expenses increased, as a percentage of revenues, primarily as a result of increased investments in research and development (R&D) for new products and services offerings. R&D expenses were $22,000 in the first quarter compared to $15,000 last year. The company changed the nature of its annual sales training and recognition meeting and incurred $1,400 of incremental period costs in the first quarter versus last year. Additionally, in fiscal year 2001, the company extended its incentive compensation program to include a greater number of management and professionals to drive sales growth and higher operating margins. The participants in this program were not on any previous form of incentive compensation. The company also incurred costs associated with closing the Oklahoma City manufacturing facility. Income from continuing operations declined 5%, compared to a 9% decline in operating income because net interest was favorable to last year. Interest expense declined from last year because of lower debt balances as the company repaid Information Solutions segment related debt in August 2000. Interest income was higher than last year's first quarter because of higher investments as a result of the cash proceeds received in August 2000 for the sale of the Information Solutions segment. Equity in net losses of affiliated companies increased $1,261 over last year as a result of the May 2000 equity investment in ChoiceParts LLC. Earnings per share benefited from shares repurchased during the quarter. Share repurchases are discussed further under the Shareholders' Equity caption. RETAIL MANAGEMENT SOLUTIONS (FORMERLY DEALER MANAGEMENT SOLUTIONS)
2000 1999 Change % Change -------------------------------------------- Net sales and revenues $140,656 $140,442 $214 0% Gross profit $85,635 $80,925 $4,710 6% % of revenues 60.9% 57.6% SG&A expenses $59,911 $51,990 $7,921 15% % of revenues 42.6% 37.0% Operating income $25,724 $28,935 ($3,211) -11% % of revenues 18.3% 20.6%
Retail Management Solutions revenues increased slightly over last year as computer service revenues continued to grow. Computer services revenues, comprised predominately of recurring software support and equipment maintenance 9 10 revenues, continued to grow because of the increased number of ERA retail management systems sold. This revenue growth was essentially offset by a decline in the number of ERA retail management systems sold. The backlog of new orders for computer systems products and deferred revenues (orders shipped, but not yet recognized in revenues) was $23,000 at December 31, 2000, compared to $31,000 at September 30, 2000. Gross profit margins increased over last year primarily as a result of the growth in higher margin computer services revenues. See the consolidated summary for a discussion of SG&A expenses. TRANSFORMATION SOLUTIONS (FORMERLY PROFESSIONAL SERVICES)
2000 1999 Change % Change ---------------------------------------------------------- Net sales and revenues $49,692 $25,551 $24,141 94% Gross profit $23,135 $10,612 $12,523 118% % of revenues 46.6% 41.5% SG&A expenses $21,958 $9,705 $12,253 126% % of revenues 44.2% 38.0% Operating income $1,177 $907 $270 30% % of revenues 2.4% 3.5%
Transformation Solutions revenues grew 94% during the quarter, in large part as a result of the May 2000 acquisition of HAC Group LLC. Excluding HAC revenues, sales grew 13% primarily because of strong growth in the number of IntelliPath systems sold. The gross profit margin increased over last year because of the acquisition of the higher margin HAC business and the growth in higher margin IntelliPath revenues. See the consolidated summary for a discussion of SG&A expenses. DOCUMENTS
2000 1999 Change % Change --------------------------------------------- Net sales and revenues $42,920 $45,326 ($2,406) -5% Gross profit $26,749 $28,589 ($1,840) -6% % of revenues 62.3% 63.1% SG&A expenses $18,982 $18,941 $41 0% % of revenues 44.2% 41.8% Operating income $7,767 $9,648 ($1,881) -19% % of revenues 18.1% 21.3%
Documents sales declined from last year, consistent with recent trends as business forms products continue to migrate to printing solutions. The company reports sales of laser printing solutions in both Retail Management Solutions and Transformation Solutions. In total, laser printing revenues increased more than forms sales declined. Gross profit margins remained strong during the quarter. See the consolidated summary for a discussion of SG&A expenses. FINANCIAL SERVICES
2000 1999 Change % Change --------------------------------------------- Net sales and revenues $10,218 $9,764 $454 5% Operating income $5,824 $4,915 $909 18% % of revenues 57.0% 50.3%
Financial Services interest revenues increased over last year, primarily because of gains on residuals at termination of finance receivables. The average finance receivable balances remained about the same as a year ago. Interest rates on finance receivables increased very slightly over last year. Financial Services' interest rate spread remained strong at 2.8%, compared to 3.4% last year. The interest rate spread declined primarily because of higher interest rates on borrowings. Bad debt expenses were $712 less than last year reflecting favorable charge-off experience. The company has entered into various interest rate management agreements to limit interest rate exposure on financial services variable rate debt. It is important to manage this interest rate exposure because the proceeds from these borrowings were invested in fixed rate finance receivables. The company believes that over time it has reduced interest expense by using interest rate management agreements and variable rate debt instead of directly obtaining fixed rate debt. During the first three months of fiscal year 2001, the company did not enter into any new interest rate management 10 11 agreements. See Note 6 to the Consolidated Financial Statements for additional discussion of interest rate management agreements. LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS Automotive Solutions continued to provide strong cash flows from operating activities during the first three months of the fiscal year. Operating cash flows were $38,501 and resulted primarily from net income, adjusted for noncash charges. Operating cash flow funded the company's investments for normal operations including capital expenditures of $15,678. Capital expenditures included $8,426 for the construction of a new office building near Dayton, Ohio. During the first three months of the fiscal year, the company also capitalized $1,704 of software licensed to customers, representing primarily internal capitalization. Capital expenditures and capitalized software in the ordinary course of business are anticipated to be about $70,000 in fiscal year 2001, which includes about $30,000 for the new office building. Cash used for business combinations related to the November 2000 purchase of DealerKid. See Note 5 to the Consolidated Financial Statements for more information on DealerKid. Fiscal year 2001 cash flows for discontinued operations represent primarily the payment of taxes associated with the sale of the Information Solutions segment in fiscal year 2000. Financial services operating cash flows, collections on finance receivables and additional borrowings were invested in new finance receivables for the company's automotive systems and used to make scheduled debt repayments. CAPITALIZATION The company's ratio of total debt (total automotive solutions debt) to capitalization (total automotive solutions debt plus shareholders' equity) was 20.1% at December 31, 2000 compared to 19.0% at September 30, 2000. Remaining credit available under committed revolving credit agreements was $93,650 at December 31, 2000. In addition to committed credit agreements, the company also has a variety of other short-term credit lines available. The company anticipates that cash balances, cash flow from operations and cash available from committed credit agreements will be sufficient to fund normal operations over the next year. The company has consistently produced strong operating cash flows sufficient to fund normal operations. Strong operating cash flows are the result of stable operating margins and a high percentage of recurring service revenues, which require relatively low capital investment. Debt instruments have been used primarily to fund business combinations and Financial Services receivables. In fiscal year 1997, the company filed a shelf registration statement with the Securities and Exchange Commission whereby the company can issue up to $300,000 of notes. Through December 31, 2000, the company has issued $170,000 of notes under this arrangement. Management believes that its strong balance sheet and cash flows should help maintain an investment grade credit rating that should provide access to capital sufficient to meet the company's cash requirements beyond the next year. SHAREHOLDERS' EQUITY The company lists its Class A common shares on the New York Stock Exchange. There is no principal market for the Class B common shares. The company also has an authorized class of 60 million preferred shares with no par value. As of February 8, 2001, no preferred shares were outstanding and there were no agreements or commitments with respect to the sale or issuance of these shares. Dividends are typically declared each November, February, May and August and paid in January, April, June and September. Dividends per Class A common share must be twenty times the dividends per Class B common share and all dividend payments must be simultaneous. The company has paid dividends every year since the company's initial public offering in 1961. During the first three months of fiscal year 2001, the company repurchased 2,512 Class A common shares for $48,656 ($19.37 per share). As of December 31, 2000 the company could repurchase an additional 3,679 Class A common shares under existing board of directors' authorizations. MARKET RISKS INTEREST RATES The Automotive Solutions portion of the business borrows money, as needed, primarily to fund business combinations. Generally the company borrows under fixed rate agreements with terms of ten years or less. 11 12 The Financial Services segment of the business obtains borrowings to fund the investment in finance receivables. These fixed rate receivables have repayment terms of four to eight years, with five years being the most common term. The company funds finance receivables with debt that has repayment terms consistent with the maturities of the finance receivables. Generally the company attempts to lock in the interest spread on the fixed rate finance receivables by borrowing under fixed rate agreements or using interest rate management agreements to manage variable interest rate exposure. The company does not use financial instruments for trading purposes. See Note 6 to the Consolidated Financial Statements for additional discussion of interest rate management agreements. Because fixed rate finance receivables are directionally funded with fixed rate debt or its equivalent (variable rate debt that has been fixed with interest rate swaps), management believes that a 100 basis point change in interest rates would not have a material effect on the company's financial statements. FOREIGN CURRENCY EXCHANGE RATES The company has foreign-based operations in Canada, which accounted for 5% of net sales and revenues for the three months ended December 31, 2000. In the conduct of its foreign operations the company has intercompany sales, charges and loans between the U.S. and Canada and may receive dividends denominated in different currencies. These transactions expose the company to changes in foreign currency exchange rates. At December 31, 2000, the company had no foreign currency exchange contracts outstanding. Based on the company's overall foreign currency exchange rate exposure at December 31, 2000, management believes that a 10% change in currency rates would not have a material effect on the company's financial statements. ENVIRONMENTAL MATTER See Note 7 to the Consolidated Financial Statements for a discussion of the company's environmental contingencies. ACCOUNTING STANDARD See Note 8 to the Consolidated Financial Statements for a discussion of the effect of accounting standards that the company has not yet adopted. FACTORS THAT MAY AFFECT FUTURE RESULTS Certain statements in this Management's Discussion and Analysis of the Financial Condition and Results of Operations constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on current expectations, estimates, forecasts and projections of future company or industry performance based on management's judgment, beliefs, current trends and market conditions. Forward-looking statements made by the company may be identified by the use of words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions. Forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Actual outcomes and results may differ materially from what is expressed, forecasted or implied in any forward-looking statement. The company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. See also the discussion of factors that may affect future results contained in the company's Current Report on Form 8-K filed with the SEC on August 11, 2000, which we incorporate herein by reference. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 Financial Data Schedules (b) Reports on Form 8-K On November 15, 2000, the company filed a report on Form 8-K disclosing that the company had ended certain negotiations with General Motors. The company also disclosed the election of Lloyd G. "Buzz" Waterhouse as Chief Executive Officer of the company. On November 28, 2000, the company filed a report on Form 8-K disclosing the purchase of eCustomerCentric Solutions, Inc. a.k.a. DealerKid. 12 13 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. THE REYNOLDS AND REYNOLDS COMPANY Date February 12, 2001 /s/ Dale L. Medford ----------------------------- ----------------------------- Dale L. Medford Executive Vice President and Chief Financial Officer 13 EX-27 2 l86530aex27.txt EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. 3-MOS SEP-30-2001 OCT-01-2000 DEC-31-2000 1 133,110 0 134,035 2,907 14,968 312,773 317,944 171,233 1,169,987 172,358 242,890 0 0 122,357 344,694 1,169,987 87,135 243,486 45,802 97,749 0 0 5,185 40,225 16,346 23,879 0 0 0 23,879 0.32 0.32
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