-----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, VwUNDTjTTr+yB9FRpPY1leG3SRgeI5wDm11IbE6kdXuYwk2g8a68XnvH3wJSyAL5 73anWyAtzQBVoDdHdhevag== 0000950152-96-000441.txt : 19960216 0000950152-96-000441.hdr.sgml : 19960216 ACCESSION NUMBER: 0000950152-96-000441 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960213 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: 96517054 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 DECEMBER 31, 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 ---- ---- On February 9, 1996, 40,823,526 Class A common shares and 10,000,000 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, 1995 and 1994 3 Condensed Consolidated Balance Sheets As of December 31, 1995 and September 30, 1995 4 Condensed Statements of Consolidated Cash Flows For the Three Months Ended December 31, 1995 and 1994 5 Notes to Condensed Consolidated Financial Statements 6 Independent Accountants' Review Report 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations For the Three Months Ended December 31, 1995 and 1994 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE REYNOLDS AND REYNOLDS COMPANY STATEMENTS OF CONSOLIDATED INCOME FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994 (In thousands except per share data)
Three Months ---------------------------- 1995 1994 ------------ ------------ Net Sales and Revenues Information systems Products $151,545 $142,362 Services 75,588 61,237 ------------ ------------ Total information systems 227,133 203,599 Financial services 6,234 5,100 ------------ ------------ Total net sales and revenues 233,367 208,699 ------------ ------------ Costs and Expenses Information systems Cost of sales Products 86,953 82,294 Services 28,793 25,464 ------------ ------------ Total cost of sales 115,746 107,758 Selling, general and administrative expenses 77,487 65,866 Financial services 2,862 2,035 ------------ ------------ Total costs and expenses 196,095 175,659 ------------ ------------ Operating Income 37,272 33,040 ------------ ------------ Other Charges (Income) Interest expense 1,018 818 Interest income (660) (433) Other (275) (214) ------------ ------------ Total other charges 83 171 ------------ ------------ Income Before Income Taxes 37,189 32,869 Provision for Income Taxes 15,803 13,980 ------------ ------------ Net Income $ 21,386 $ 18,889 ============ ============ Earnings Per Common Share $ 0.50 $0.44 ============ ============ Average Number of Common Shares Outstanding 42,690 42,736 ============ ============ Cash Dividends Declared Per Common Share $ 0.12 $ 0.10 ============ ============ See Independent Accountants' Review Report and Notes to Condensed Consolidated Financial Statements.
4 THE REYNOLDS AND REYNOLDS COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND SEPTEMBER 30, 1995 (In thousands)
12/31/95 9/30/95 ------------ ------------ INFORMATION SYSTEMS ASSETS Current Assets Cash and equivalents $ 17,593 $ 18,366 Accounts receivable 114,902 114,617 Inventories 42,027 37,796 Other current assets 20,058 17,412 ------------ ------------ Total current assets 194,580 188,191 Property, Plant and Equipment, less accumulated depreciation of $159,041 at 12/31/95 and $153,584 at 9/30/95 130,925 128,462 Goodwill 99,294 101,275 Other Intangible Assets 27,638 28,614 Other Assets 46,748 42,959 ------------ ------------ Total Information Systems Assets 499,185 489,501 ------------ ------------ FINANCIAL SERVICES ASSETS Finance Receivables 274,610 264,901 Cash and Other Assets 1,382 1,064 ------------ ------------ Total Financial Services Assets 275,992 265,965 ------------ ------------ TOTAL ASSETS $775,177 $755,466 ============ ============ INFORMATION SYSTEMS LIABILITIES Current Liabilities $129,254 $125,833 Long-Term Debt 41,249 41,443 Other Liabilities 54,911 55,153 ------------ ------------ Total Information Systems Liabilities 225,414 222,429 ------------ ------------ FINANCIAL SERVICES LIABILITIES Notes Payable 138,800 131,675 Other Liabilities 70,829 68,807 ------------ ------------ Total Financial Services Liabilities 209,629 200,482 ------------ ------------ SHAREHOLDERS' EQUITY Capital Stock 25,817 25,941 Additional Paid-In Capital 16,194 15,815 Other Adjustments (3,772) (3,581) Retained Earnings 301,895 294,380 ------------ ------------ Total Shareholders' Equity 340,134 332,555 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $775,177 $755,466 ============ ============ See Independent Accountants' Review Report and Notes to Condensed Consolidated Financial Statements.
5 THE REYNOLDS AND REYNOLDS COMPANY CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994 (In thousands)
1995 1994 ---- ---- INFORMATION SYSTEMS Cash Flows Provided By Operating Activities $18,997 $19,615 ------------ ------------ Cash Flows Provided By (Used For) Investing Activities Business combinations (117) (11,543) Capital expenditures (9,214) (6,449) Net proceeds from asset sales 545 871 Capitalization of software licensed to customers (824) (395) Advances to financial services (920) (1,166) ------------ ------------ Net cash flows used for investing activities (10,530) (18,682) ------------ ------------ Cash Flows Provided By (Used For) Financing Activities Additional borrowings 3,500 Principal payments on debt (178) (53) Capital stock issued 314 402 Capital stock repurchased (9,073) (16,997) ------------ ------------ Net cash flows used for financing activities (8,937) (13,148) ------------ ------------ Effect of Exchange Rate Changes on Cash (303) (751) ------------ ------------ Decrease in Cash and Equivalents (773) (12,966) Cash and Equivalents, Beginning of Period 18,366 20,230 ------------ ------------ Cash and Equivalents, End of Period $17,593 $7,264 ============ ============ FINANCIAL SERVICES Cash Flows Provided By Operating Activities $3,400 $3,047 ------------ ------------ Cash Flows Provided By (Used For) Investing Activities Finance receivables originated (28,487) (24,764) Collections on finance receivables 17,314 14,862 ------------ ------------ Net cash flows used for investing activities (11,173) (9,902) ------------ ------------ Cash Flows Provided By (Used For) Financing Activities Additional borrowings 15,250 12,350 Principal payments on debt (8,125) (7,000) Advances from information systems 920 1,166 ------------ ------------ Net cash flows provided by financing activities 8,045 6,516 ------------ ------------ Increase (Decrease) in Cash and Equivalents 272 (339) Cash and Equivalents, Beginning of Period 663 1,200 ------------ ------------ Cash and Equivalents, End of Period $935 $861 ============ ============ See Independent Accountants' Review Report and Notes to Condensed Consolidated Financial Statements.
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, 1995, 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) 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 December 31, 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 as of December 31, 1995 and 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 this facility and believes that the reasonably foreseeable resolution of this matter will not have a material adverse effect on the financial statements. See Independent Accountants' Review Report. 6 7 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 December 31, 1995, and the related statements of consolidated income and condensed consolidated cash flows for the three months ended December 31, 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, 1995 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 10, 1995, 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, 1995 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 February 12, 1995 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE REYNOLDS AND REYNOLDS COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994 (Dollars in thousands except per share data) RESULTS OF OPERATIONS CONSOLIDATED SUMMARY
1995 1994 Change % Change ----------- ----------- ---------- ----------- Revenues $233,367 $208,699 $24,668 12% Gross profit $111,387 $95,841 $15,546 16% Operating income $37,272 $33,040 $4,232 13% Net income $21,386 $18,889 $2,497 13% Earnings per share $0.50 $0.44 $0.06 14%
Consolidated revenues were the highest first quarter ever and the second highest for any quarter in the company's history. Computer systems, business forms and financial services all posted double digit percentage sales increases, as compared to last year. The effect of last year's business combinations was to increase consolidated revenues about $12 million in the first quarter. Consolidated gross profit increased to 49.0% of revenues in the first quarter, compared to 47.1% last year. Both computer systems and business forms gross profit percentage increased over last year. Selling, general and administrative expenses increased to 34.1% of revenues from 32.4% last year reflecting investments in new computer systems products. First quarter's consolidated operating income was the highest for any quarter in the company's history. Business forms operating income increased more than 50% over last year while financial services increased 10%. Computer systems operating income declined from 1995's first quarter because of continued investments in healthcare systems and new automotive products. The earnings per share percentage increase was slightly higher than net income's because of share repurchases which reduced outstanding shares. Annualized return on average shareholders' equity was 24%, approximating last year's. COMPUTER SYSTEMS (excluding financial services)
1995 1994 Change % Change ----------- ----------- ---------- ----------- Revenues $110,467 $100,410 $10,057 10% Gross profit $55,105 $47,585 $7,520 16% % of revenues 49.9% 47.4% Operating income $16,634 $18,896 ($2,262) -12% % of revenues 15.1% 18.8%
Computer systems first quarter revenues increased 8% for automotive systems and 39% for healthcare systems because of higher recurring service revenues for automotive computer systems and the effect of fiscal year 1995 acquisitions for both automotive and healthcare systems. Automotive recurring service revenues continued to grow because of the increased number of software applications supported and was responsible for automotive systems' growth. The December 31, 1995 backlog of product sales orders approximated the September 30, 1995 backlog. Business combinations contributed about $6 million of the segment's sales growth in the first quarter. Computer systems first quarter operating income decreased from last year for both automotive and healthcare systems. Automotive systems gross profit percentage increased to 50.2% from 47.9% last year primarily because of a greater mix of 8 9 higher margin recurring service revenues. However, higher SG&A expenses associated with the continued investment in new products caused operating income to decline. Operating income is expected to rise once sales of these new products increase. Healthcare systems gross profit margin increased, but it too experienced higher SG&A expenses as a result of last year's business combinations and implementing sales, marketing and product development strategies for future growth. Both automotive and healthcare systems improved their operating income from the fourth quarter of fiscal year 1995. BUSINESS FORMS
1995 1994 Change % Change ----------- ----------- ---------- ----------- Revenues $116,666 $103,189 $13,477 13% Gross profit $56,282 $48,256 $8,026 17% % of revenues 48.2% 46.8% Operating income $17,266 $11,079 $6,187 56% % of revenues 14.8% 10.7%
Business forms revenues increased primarily as a result of strong growth in general business forms and forms management services. About $6 million or nearly half of the general business forms revenue growth resulted from 1995 business combinations. Business forms revenues also reflected higher sales prices because of fiscal year 1995's growth in paper costs. Business forms operating income increased for both automotive forms and general business forms (including forms management services). Automotive forms operating income rose as SG&A expenses declined as a percentage of sales and offset a slight decrease in gross profit margin. General business forms operating income grew significantly as gross profit margins improved more than four percentage points. Gross profit margins improved, in large part, as a result of the 1994 restructuring which reduced low margin computer paper sales and improved the sales mix. Automotive and general business forms gross profit margins also benefited from lower LIFO inventory adjustments than last year, when paper costs were rising rapidly. The paper market was more stable during the first quarter of fiscal year 1996. General business forms SG&A expenses also declined as a percentage of revenues, primarily as a result of cost reductions from the 1994 restructuring and cost control measures. FINANCIAL SERVICES
1995 1994 Change % Change ----------- ----------- ---------- ----------- Revenues $6,234 $5,100 $1,134 22% Operating income $3,372 $3,065 $307 10% % of revenues 54.1% 60.1%
Financial services revenues increased for the first quarter because of interest earned on higher average finance receivables. Average finance receivables increased almost 30% over last year because of strong ERA automotive systems sales over the last twelve months. 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 first quarter because of the effect of higher average borrowing costs. Bad debt expenses, while at historically low levels, were slightly higher than last year. 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 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 quarter of fiscal year 1996 the company did not enter into any new interest rate management agreements. 9 10 LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS Information systems strong cash flows from operating activities of $18,997 resulted from information systems net income of $19,360. Depreciation and amortization expenses increased to $10,086, compared to $8,154 last year primarily because of assets recorded in connection with last year's business combinations. Capital expenditures of $9,214 occurred in the normal course of business. The company also repurchased $9,073 of capital stock in the first quarter. See the shareholders' equity caption of this analysis for a further discussion of share repurchases. 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 13.1% at December 31, 1995 and 13.4% at September 30, 1995. Remaining credit available under existing revolving credit agreements was $35,200 at December 31, 1995. In addition to committed credit agreements, the company also has a variety of other short-term credit lines available. The company estimates that cash flow from operations and cash available from existing credit agreements will be sufficient to fund fiscal year 1996 normal operations. Capital expenditures in the ordinary course of business are anticipated to be about $35 million in 1996. 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 12, 1996, none of these preferred shares was 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. In November 1995, the company's board of directors increased the quarterly dividend 20% to $.12 per Class A common share. The company has increased cash dividends per share nine times since 1989 and paid dividends each year since the company's initial public offering in 1961. The company has conducted an active share repurchase program during recent years to provide increased returns to shareholders. During the first quarter of fiscal year 1996, the company repurchased 250,000 Class A common shares for $9,073, an average price of $36.29 per share. The company could repurchase an additional 2,319,500 Class A common shares under existing board of directors' authorizations as of December 31, 1995. ENVIRONMENTAL MATTERS See Note 2 to the Consolidated Financial Statements for a discussion of the company's environmental contingencies. 10 11 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 No reports on Form 8-K were filed during the quarter ended December 31, 1995. 11 12 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, 1996 /s/ Dale L. Medford ------------------------- ------------------------------------ Dale L. Medford Vice President, Corporate Finance and Chief Financial Officer 12 EX-27 2 EXHIBIT 27
5 1,000 3-MOS SEP-30-1996 OCT-01-1995 DEC-31-1995 17,593 0 118,323 3,421 42,027 194,580 289,966 159,041 775,177 129,254 149,549 25,817 0 0 314,317 775,177 151,545 233,367 86,953 115,746 0 0 3,180 37,189 15,803 21,386 0 0 0 21,386 0.50 0.50
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