0000950152-95-001797.txt : 19950815 0000950152-95-001797.hdr.sgml : 19950815 ACCESSION NUMBER: 0000950152-95-001797 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950814 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: REYNOLDS & REYNOLDS CO CENTRAL INDEX KEY: 0000083588 STANDARD INDUSTRIAL CLASSIFICATION: MANIFOLD BUSINESS FORMS [2761] IRS NUMBER: 310421120 STATE OF INCORPORATION: OH FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10147 FILM NUMBER: 95563252 BUSINESS ADDRESS: STREET 1: 115 S LUDLOW ST CITY: DAYTON STATE: OH ZIP: 45402 BUSINESS PHONE: 5134432000 MAIL ADDRESS: STREET 1: P.O. BOX 2608 CITY: DAYTON STATE: OH ZIP: 45401 10-Q 1 REYNOLDS & REYNOLDS 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 JUNE 30, 1995 0-132 ----- (Commission file number) THE REYNOLDS AND REYNOLDS COMPANY --------------------------------- (Exact name of registrant as specified in its charter) OHIO 31-0421120 ---- ---------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 115 SOUTH LUDLOW STREET, DAYTON, OHIO 45402 ------------------------------------------- (Address of principal executive offices) (513) 443-2000 -------------- (Registrant's telephone number) NONE ---- (Former name, former address and former fiscal year, if changed since last report) 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 ---- ---- As of August 10, 1995, the number of Class A common shares outstanding was 41,245,972 and the number of Class B common shares outstanding was 10,000,000. 2 THE REYNOLDS AND REYNOLDS COMPANY AND SUBSIDIARIES TABLE OF CONTENTS
Page Number ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements Statements of Consolidated Income For the Three and Nine Months Ended June 30, 1995 and 1994 3 Condensed Consolidated Balance Sheets As of June 30, 1995 and September 30, 1994 4 Condensed Statements of Consolidated Cash Flows For the Nine Months Ended June 30, 1995 and 1994 5 Notes to Condensed Consolidated Financial Statements 6 Independent Accountants' Review Report 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations For the Three and Nine Months Ended June 30, 1995 and 1994 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 13 SIGNATURES 14
2 3 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS THE REYNOLDS AND REYNOLDS COMPANY AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1995 AND 1994 (In thousands except per share data)
Three Months Nine Months ------------ ------------ 1995 1994 1995 1994 ---- ---- ---- ---- Net Sales and Revenues Information systems Products $156,727 $142,326 $457,284 $420,020 Services 68,600 55,151 194,780 165,933 -------- ------- ------- ------- Total information systems 225,327 197,477 652,064 585,953 Financial services 5,871 4,836 16,351 14,461 -------- ------- ------- ------- Total net sales and revenues 231,198 202,313 668,415 600,414 -------- ------- ------- ------- Costs and Expenses Information systems Cost of sales Products 93,159 83,784 269,075 250,853 Services 26,935 22,865 79,168 71,080 -------- ------- ------- ------- Total cost of sales 120,094 106,649 348,243 321,933 Selling, general and administrative expenses 74,229 67,187 212,649 195,117 Restructuring charge 12,400 12,400 Financial services 2,445 1,762 6,611 4,719 -------- ------- ------- ------- Total costs and expenses 196,768 187,998 567,503 534,169 -------- ------- ------- ------- Operating Income 34,430 14,315 100,912 66,245 -------- ------- ------- ------- Other Charges (Income) Interest expense 972 853 2,760 2,615 Interest income (436) (303) (1,158) (918) Other (540) (1,043) (1,490) (1,395) -------- ------- ------- ------- Total other charges (income) (4) (493) 112 302 -------- ------- ------- ------- Income Before Income Taxes 34,434 14,808 100,800 65,943 Provision for (Benefit from) Income Taxes 14,574 (3,289) 42,721 17,968 -------- ------- ------- ------- Net Income $ 19,860 $ 18,097 $ 58,079 $ 47,975 ======== ======== ======== ======== Earnings Per Common Share $ 0.47 $ 0.41 $ 1.37 $ 1.09 ======== ======== ======== ======== Average Number of Common Shares Outstanding 42,480 43,759 42,469 43,913 ======== ======== ======== ======== Cash Dividends Declared Per Common Share $ 0.10 $ 0.085 $ 0.30 $ 0.25 ======== ======== ======== ======== See Independent Accountants' Review Report and Notes to Condensed Consolidated Financial Statements.
4 THE REYNOLDS AND REYNOLDS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1995 AND SEPTEMBER 30, 1994 (In thousands)
6/30/95 9/30/94 ------- ------- INFORMATION SYSTEMS ASSETS Current Assets Cash and equivalents $ 9,513 $ 20,230 Accounts receivable 113,379 101,872 Inventories 38,419 37,274 Other current assets 16,743 16,140 -------- -------- Total current assets 178,054 175,516 Property, Plant and Equipment, less accumulated depreciation of $148,216 in 1995 and $143,367 in 1994 125,258 117,485 Goodwill 102,248 78,277 Other Intangible Assets 26,978 25,229 Other Assets 43,186 34,085 -------- -------- Total Information Systems Assets 475,724 430,592 -------- -------- FINANCIAL SERVICES ASSETS Finance Receivables 247,195 202,620 Cash and Other Assets 1,165 1,487 -------- -------- Total Financial Services Assets 248,360 204,107 -------- -------- TOTAL ASSETS $724,084 $634,699 ======== ======== INFORMATION SYSTEMS LIABILITIES Current Liabilities $112,818 $ 90,039 Long-Term Debt 41,741 41,014 Other Liabilities 52,949 52,417 -------- -------- Total Information Systems Liabilities 207,508 183,470 -------- -------- FINANCIAL SERVICES LIABILITIES Notes Payable 125,400 104,363 Other Liabilities 65,172 53,827 -------- -------- Total Financial Services Liabilities 190,572 158,190 -------- -------- SHAREHOLDERS' EQUITY Capital Stock 26,095 26,380 Additional Paid-In Capital 14,484 2,557 Other Adjustments (2,924) (2,566) Retained Earnings 288,349 266,668 -------- -------- Total Shareholders' Equity 326,004 293,039 -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $724,084 $634,699 ======== ======== See Independent Accountants' Review Report and Notes to Condensed Consolidated Financial Statements.
5 THE REYNOLDS AND REYNOLDS COMPANY AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 1995 AND 1994 (In thousands)
1995 1994 ------- ------- INFORMATION SYSTEMS Cash Flows Provided By Operating Activities $77,115 $57,577 ------- ------- Cash Flows Provided By (Used For) Investing Activities Business combinations (18,885) (9,943) Capital expenditures (22,577) (16,074) Net proceeds from asset sales 3,159 9,752 Capitalization of software licensed to customers (2,255) (2,520) Repayments from (advances to) financial services (7,366) 796 ------- ------- Net cash flows used for investing activities (47,924) (17,989) ------- ------- Cash Flows Provided By (Used For) Financing Activities Additional borrowings 1,254 1,250 Principal payments on debt (4,521) (2,007) Cash dividends paid (12,502) (10,599) Capital stock issued 762 1,439 Capital stock repurchased (24,529) (25,112) ------- ------- Net cash flows used for financing activities (39,536) (35,029) ------- ------- Effect of Exchange Rate Changes on Cash (372) (501) ------- ------- Increase (Decrease) in Cash and Equivalents (10,717) 4,058 Cash and Equivalents, Beginning of Period 20,230 9,437 ------- ------- Cash and Equivalents, End of Period $ 9,513 $13,495 ======= ======= FINANCIAL SERVICES Cash Flows Provided By Operating Activities $10,042 $ 7,453 ------- ------- Cash Flows Provided By (Used For) Investing Activities Finance receivables originated (85,973) (56,262) Collections on finance receivables 47,037 41,650 ------- ------- Net cash flows used for investing activities (38,936) (14,612) ------- ------- Cash Flows Provided By (Used For) Financing Activities Additional borrowings 55,000 25,700 Principal payments on debt (33,963) (18,113) Advances from (repayments to) information systems 7,366 (796) ------- ------- Net cash flows provided by financing activities 28,403 6,791 ------- ------- Decrease in Cash and Equivalents (491) (368) Cash and Equivalents, Beginning of Period 1,200 996 ------- ------- Cash and Equivalents, End of Period $ 709 $ 628 ======= ======= See Independent Accountants' Review Report and Notes to Condensed Consolidated Financial Statements.
6 THE REYNOLDS AND REYNOLDS COMPANY AND SUBSIDIARIES 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, 1994, 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) BUSINESS FORMS RESTRUCTURING During the third quarter of fiscal year 1994, the company recorded a restructuring charge of $12,400 for costs to be incurred in the disposal of part of its stock tab computer paper product line and the consolidation of certain custom business forms printing operations. The company discontinued the manufacture of certain low-margin stock tab computer paper products and closed its Chambersburg, Pennsylvania plant. The company also closed its custom business forms plant in Chestertown, Maryland and consolidated operations primarily into its Hagerstown, Maryland plant. Several distribution facilities and sales offices were closed and almost 300 positions were eliminated. As of June 30, 1995, the restructuring has been completed and the costs originally accrued approximated those subsequently incurred. (3) BUSINESS COMBINATIONS On November 1, 1994, the company acquired substantially all assets and assumed certain liabilities of PD Medical Systems of Portland, Oregon for $7,602 of cash. PD Medical Systems, a provider of information management systems to medical practices, has annual revenues of about $8,000. On December 2, 1994, the company acquired most of the assets of Transkrit Corporation's Pegboard and Flat Division for $4,436 of cash. Assets acquired were Transkrit's wholesale pegboard customer list, certain printing equipment and inventories for pegboard and related products. Transkrit's Pegboard and Flat Division has annual sales of about $7,000. On January 26, 1995, the company purchased substantially all assets and assumed certain liabilities of Service Systems Enterprises Inc. (SSEI) for $4,610 of cash and $4,000 of notes. SSEI, a provider of highly targeted direct marketing services to automobile dealerships, has annual sales of about $8,000. On May 8, 1995, the company purchased substantially all assets and assumed certain liabilities of Dataforms, Inc. for $1,646 of cash and $5,492 of notes. Dataforms, a regional provider of business forms and forms management services, has annual sales of about $20,000. On May 11, 1995 the company exchanged 261,321 Class A common shares for the outstanding common stock of Salcris Systems Inc. Salcris Systems, a provider of information management systems for physician groups and integrated healthcare delivery networks, has annual sales of about $10,000. The company also completed four additional business combinations through June 30, 1995. The companies purchased were essentially start-up businesses which provide new products to enhance the company's existing product offering to automobile dealers. The combined purchase price for these assets was paid by issuing 152,467 of the company's Class A common shares, with the remainder of $1,057 paid in cash. These business combinations were accounted for as purchases and the accounts of acquired businesses were included in the company's financial statements since their respective acquisition dates. Goodwill resulting from these acquisitions is being amortized over five to twenty years. The acquisitions were funded with internally generated cash. Under the terms of some of the purchase agreements, the company may be required to make additional payments, contingent on the performance of the businesses purchased. 6 7 (4) 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 three environmental remediation sites. 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. The first site relates to a privately owned and operated solid waste disposal facility. The EPA has issued a record of decision mandating certain remediation activities. The company has shared costs with other PRPs for the remedial investigation and feasibility study of the site. The company believes it is a minor participant, and has accrued its estimated share of response costs as of June 30, 1995. The company believes that the reasonably foreseeable resolution will not have a material adverse effect on the financial statements. The second 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 the quarter ended June 30, 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. The company has accrued its estimated share of response costs of $2,500 as of June 30, 1995. Management believes that the reasonably foreseeable resolution will not have a material adverse effect on the financial statements. In January, 1994, by means of a special notice letter, the EPA notified the company that it was considered to be one of more than three hundred PRPs at a former drum reconditioning facility. A remedial investigation and feasibility study is complete. A record of decision has been issued, and a statement of work for the remedial design and remedial action is in circulation. The company was unable to substantiate any previous involvement with the facility and believes that the reasonably foreseeable resolution of this matter will not have a material adverse effect on the financial statements. 7 8 INDEPENDENT ACCOUNTANTS' REVIEW REPORT Board of Directors, The Reynolds and Reynolds Company: We have reviewed the accompanying condensed consolidated balance sheet of The Reynolds and Reynolds Company and subsidiaries as of June 30, 1995, and the related statements of consolidated income for the three and nine months ended June 30, 1995 and 1994 and condensed consolidated cash flows for the nine months ended June 30, 1995 and 1994. These financial statements are the responsibility of the company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of The Reynolds and Reynolds Company and subsidiaries as of September 30, 1994 and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated November 14, 1994, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 1994 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE LLP Dayton, Ohio August 11, 1995 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE REYNOLDS AND REYNOLDS COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1995 AND 1994 (Dollars in thousands except per share data) SIGNIFICANT EVENTS BUSINESS COMBINATIONS During the first nine months of fiscal year 1995, the company completed several business combinations. See Note 3 to the Consolidated Financial Statements for disclosures about these business combinations. BUSINESS FORMS RESTRUCTURING During the third quarter of fiscal year 1994, the company recorded a $12,400 restructuring charge for costs incurred in the disposal of part of its stock tab computer paper product line and the consolidation of certain custom business forms printing operations. As of June 30, 1995, the restructuring has been completed and the costs originally accrued approximated those subsequently incurred. Year-to-date operating income for forms management services and custom printing improved $9,500 over last year, in part, because of cost savings from the restructuring. The benefits of the restructuring have significantly exceeded those originally anticipated. See Note 2 to the Consolidated Financial Statements for additional disclosures related to the restructuring. RESULTS OF OPERATIONS CONSOLIDATED SUMMARY
Third Quarter Nine Months --------------------------------------------------- -------------------------------------------------- 1995 1994 Change % Change 1995 1994 Change % Change --------- -------- ------- --------- -------- -------- ------- --------- Revenues $231,198 $202,313 $28,885 14% $668,415 $600,414 $68,001 11% Operating Income $34,430 $14,315 $20,115 141% $100,912 $66,245 $34,667 52% Net Income $19,860 $18,097 $1,763 10% $58,079 $47,975 $10,104 21% Earnings Per Share $0.47 $0.41 $0.06 15% $1.37 $1.09 $0.28 26%
Consolidated revenues established a record in the third quarter as both computer systems and business forms reported strong sales gains. Revenues for the nine months also increased at a double digit rate over last year, primarily because of increased computer systems revenues, although business forms revenues also increased solidly. The net effect of 1994 and 1995 divestitures and acquisitions was to increase consolidated revenues about $11,000 in the third quarter and $5,000 through nine months. Third quarter's consolidated operating income increased significantly over last year, which included a $12,400 restructuring charge and $2,793 of other one-time expenses. Excluding the unusual charges from 1994's income, third quarter's operating income increased $4,922 or 17% as business forms improvement offset a decline in computer systems. The decline in computer systems resulted from increased investments in the healthcare business, the Customer For Life program and new products for the automotive systems business. For the nine months, consolidated operating income increased $19,474 or 24%, excluding the unusual charges from 1994. This increase resulted from higher operating income in both business forms and computer systems. Other income for the third quarter declined from last year as 1994 included the gain on the sale of the French subsidiary. Year-to-date other income was comparable to with last year. The year-to-date effective income tax rate was 42.4% compared to 27.2% last year. The 1994 tax rate reflected a significant income tax benefit from the divestiture of the stock tab computer paper business. The effective income tax rate also increased over last year because of the increase in non-deductible goodwill associated with acquisitions and the effects of tax law changes. 9 10 The earnings per share percentage increase was greater than net income's because of share repurchases which reduced outstanding shares. Annualized return on average shareholders' equity was 24.4% compared to 22.6% last year. COMPUTER SYSTEMS (excluding financial services)
Third Quarter Nine Months ------------------------------------------------- ------------------------------------------------- 1995 1994 Change % Change 1995 1994 Change % Change -------- ------- ------- --------- -------- -------- ------- -------- Revenues $103,997 $90,342 $13,655 15% $308,542 $266,448 $42,094 16% Gross Profit $ 48,504 $42,893 $ 5,611 13% $144,557 $123,170 $21,387 17% % of Revenue 46.6% 47.5% 46.9% 46.2% Operating Income $ 14,258 $16,284 $(2,026) -12% $ 48,529 $ 42,331 $ 6,198 15%
Computer systems revenues increased for both the third quarter and nine months because of higher recurring revenues for automotive computer systems and the effect of acquisitions in both the automotive and healthcare sectors. Automotive recurring service revenues continued to grow because strong computer systems sales increased the number of software applications supported. These recurring service revenues result from monthly billings for technical support, software updates and hardware maintenance that allow customers to maximize the value of their computer systems. Also contributing to automotive systems sales growth were the acquisitions of Service Systems Enterprise Inc. (SSEI) and Ultimate Prospecting Services (UPS), which offer highly targeted direct marketing services to automobile dealerships. SSEI and UPS are part of the company's Customer For Life program, a comprehensive information based program that utilizes dealership customer databases and other regional databases to conduct one-to-one marketing. This marketing effort targets existing, former and prospective customers of the dealership for service work or vehicle sales. Healthcare computer systems sales rose because of the acquisitions of PD Medical Systems and Salcris Systems. The number of new automotive computer systems sold in the third quarter increased over last year, but sales were relatively flat because of lower average system prices as smaller systems were sold. Year-to-date, automotive computer systems sales also increased because a significantly greater number of ERA systems were sold. This increase occurred, in part, because of the full year effect of the mid-1994 increase in computer installation resources. Computer systems order backlogs should support strong sales in the fourth quarter. Computer systems third quarter operating income decreased from last year primarily because of new investments made in both the automotive and healthcare businesses. The investments in the automotive business were new product oriented, such as the Customer For Life program, for which sales levels have not yet reached critical mass. The healthcare business investments involved integrating the two acquisitions with the existing business and implementing strategies for future growth. These computer systems investments, consisting primarily of selling, marketing and development expenses, caused selling, general and administrative (SG&A) expenses to increase as a percent of sales. Gross profit margins increased slightly for the nine months, but declined in the third quarter primarily because of the lower margin systems sold. Year-to- date operating income, representing 16% of revenues for 1995 and 1994, increased significantly over last year as profit from sales growth supported the new investments. BUSINESS FORMS
Third Quarter Nine Months -------------------------------------------------- -------------------------------------------------- 1995 1994 Change % Change 1995 1994 Change % Change --------- -------- -------- -------- -------- -------- ------- --------- Revenues $121,330 $107,135 $14,195 13% $343,522 $319,505 $ 24,017 8% Gross Profit $ 56,729 $ 47,935 $ 8,794 18% $159,264 $140,850 $ 18,414 13% % of Revenues 46.8% 44.7% 46.4% 44.1% Operating Income $ 16,746 $(5,043) $21,789 - $ 42,643 $ 14,172 $ 28,471 201% (Loss)
Business forms revenues increased because strong growth of forms management services and custom printing revenues offset sales lost from the 1994 divestiture of certain low margin computer paper products. Forms management services and custom printing's revenues increased 29% for the third quarter and 19% for nine months because of increased sales volume and sales price increases. The company raised sales prices to keep pace with rising paper costs, which have increased significantly. 10 11 During the third quarter of 1994 the company recorded a $12,400 restructuring charge and $2,793 of other one-time expenses which reduced operating income. Excluding these charges, business forms third quarter operating income improved $6,596 or 65% while year-to-date operating income increased $13,278 or 45% because of sales growth and improvement in gross profit margins and SG&A expenses. Gross profit margins improved as a result of the 1994 restructuring which reduced low margin computer paper sales and improved the sales mix. Year-to-date gross profit was reduced by a $2,856 adjustment to the LIFO reserve as a result of higher paper costs. Last year the comparable LIFO adjustment was $150. SG&A expenses were 33.0% of sales in the third quarter, compared to 37.8% last year and 34.0% versus 35.8% for the nine months. SG&A expenses were less than last year, as a percentage of sales, primarily because of cost reductions from the restructuring. Although automotive forms continued to be the largest profit contributor in this segment, forms management and custom printing's profitability improved dramatically. Through nine months forms management and custom printing's operating income increased about $9,500 over last year, excluding the 1994 unusual charges. FINANCIAL SERVICES
Third Quarter Nine Months -------------------------------------------- ---------------------------------------------- 1995 1994 Change % Change 1995 1994 Change % Change ------ ------ ------ -------- ------- ------- ------- -------- Revenues $5,871 $4,836 $1,035 21% $16,351 $14,461 $1,890 13% Operating Income $3,426 $3,074 $ 352 11% $ 9,740 $9,742 $ (2) 0%
Financial services revenues increased for both the third quarter and nine months because of interest earned on higher average finance receivables. Finance receivables increased over 30% since June 1994 because of the strong ERA computer systems sales. Interest income did not increase as rapidly as finance receivables because interest rates on new receivables were lower on average than interest rates on maturing receivables. Financial services operating income increased at a slower rate than revenues in the third quarter because of the effect of higher average borrowing costs. Year-to-date, operating income was flat with last year because last year included $300 additional income from adjusting bad debt reserves. Defaults and write-offs of finance receivables remained at historically low levels. 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. During the first nine months of fiscal year 1995 the company entered into two $10,000 interest rate ceiling agreements to limit interest rate exposure on new variable rate debt. The company believes it has reduced interest expense by using interest rate management agreements and variable rate debt instead of directly obtaining fixed rate debt. LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS Information systems strong cash flows from operating activities of $77,115 resulted from record net income. The company invested its cash in business combinations and capital expenditures. During the first nine months of fiscal year 1995, the company completed several business combinations. See Note 3 to the Consolidated Financial Statements for additional information regarding these acquisitions. Capital expenditures of $22,577 occurred in the normal course of business. The company also returned cash to shareholders by repurchasing $24,529 of capital stock and paying $12,502 of dividends. See the shareholders' equity caption of this analysis for a discussion of share repurchases and dividends. Financial services operating cash flows and collections on finance receivables were invested in new finance receivables for the company's computer systems and used to make scheduled debt repayments. CAPITALIZATION The company's ratio of total debt (total information systems debt) to capitalization (total information systems debt plus shareholders' equity) was 13.8% at June 30, 1995 and 12.4% at September 30, 1994. During the fiscal year, the company issued $9,492 of new short-term debt in connection with business combinations. Remaining credit available under existing revolving credit agreements was $33,900 at June 30, 1995. In addition to committed credit agreements, the company also 11 12 has a variety of other short-term credit lines available. It is expected that cash balances and internally generated cash will be sufficient to fund fiscal year 1995 ongoing operations, which include anticipated capital expenditures of about $28,500. 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 August 10, 1995, 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, respectively. Dividends per Class A common share must be twenty times the dividends per Class B common share and all dividend payments must be simultaneous. On August 8, 1995, the company's board of directors declared a regular quarterly dividend of $.10 per Class A common share, payable September 13, 1995 to shareholders of record August 25, 1995. In November 1994, the board of directors increased the quarterly dividend to $.10 per Class A common share, an increase of 18%. This increase followed increases of 13% in February 1994 and 15% in November 1993. The company has increased cash dividends per share eight times since 1989 and paid dividends each year since the company's initial public offering in 1961. During the first nine months of fiscal year 1995, the company repurchased 1,014,500 Class A common shares for $24,529, an average price of $24.18 per share. Subsequent to June 30, 1995, the company repurchased 25,000 additional Class A common shares for $720 with settlement dates through July 5, 1995. On August 8, 1995, the company's board of directors authorized the repurchase of 2 million additional Class A common shares. The total Class A common shares authorized for repurchase was 2,886,300 as of August 10, 1995. ENVIRONMENTAL MATTERS See Note 4 to the Consolidated Financial Statements for a discussion of the company's environmental contingencies. 12 13 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (27) Financial Data Schedule (b) Reports on Form 8-K A Form 8-K was filed on July 17, 1995, which described a federal indictment of William H. Seall, a member of the company's board of directors. None of the charges relate to the company or to Mr. Seall's conduct as one of its directors. A Form 8-K was filed on July 19, 1995, which disclosed William H. Seall's resignation from the company's board of directors. 13 14 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 August 11, 1995 /s/ Dale L. Medford ---------------------- --------------------------- Dale L. Medford Vice President, Corporate Finance and Chief Financial Officer 14 EX-27 2 REYNOLDS & REYNOLDS 10-Q EX-27
5 1,000 9-MOS SEP-30-1994 OCT-01-1994 JUN-30-1995 9,513 0 115,990 2,611 38,419 178,054 273,474 148,216 724,084 112,818 133,841 26,095 0 0 299,909 724,084 457,284 668,415 269,075 348,243 0 0 7,954 100,800 42,721 58,079 0 0 0 58,079 1.37 1.37