-----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, GxU2vXDgyTNu6eJaK/L7toyiu1IFu4w/O/lURoVAtal6YXzfj6IP9ja+YuUfINrk k9skUHGPD6Ll3URGjTu67w== 0000950152-96-004101.txt : 19960814 0000950152-96-004101.hdr.sgml : 19960814 ACCESSION NUMBER: 0000950152-96-004101 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 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: 96611329 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 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, 1996 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 August 9, 1996, 40,586,227 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 and Nine Months Ended June 30, 1996 and 1995 3 Condensed Consolidated Balance Sheets As of June 30, 1996 and September 30, 1995 4 Condensed Statements of Consolidated Cash Flows For the Nine Months Ended June 30, 1996 and 1995 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 and Nine Months Ended June 30, 1996 and 1995 8 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12 SIGNATURES 13
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE REYNOLDS AND REYNOLDS COMPANY STATEMENTS OF CONSOLIDATED INCOME FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1996 AND 1995 (In thousands except per share data)
Three Months Nine Months ---------------------- ---------------------- 1996 1995 1996 1995 --------- --------- --------- --------- Net Sales and Revenues Information systems Products $ 199,312 $ 156,727 $ 524,037 $ 457,284 Services 81,145 68,600 234,091 194,780 --------- --------- --------- --------- Total information systems 280,457 225,327 758,128 652,064 Financial services 6,592 5,871 19,292 16,351 --------- --------- --------- --------- Total net sales and revenues 287,049 231,198 777,420 668,415 --------- --------- --------- --------- Costs and Expenses Information systems Cost of sales Products 114,728 93,159 300,531 269,075 Services 31,908 26,935 92,461 79,168 --------- --------- --------- --------- Total cost of sales 146,636 120,094 392,992 348,243 Selling, general and administrative expenses 94,314 74,229 255,240 212,649 Financial services 2,871 2,445 8,605 6,611 --------- --------- --------- --------- Total costs and expenses 243,821 196,768 656,837 567,503 --------- --------- --------- --------- Operating Income 43,228 34,430 120,583 100,912 --------- --------- --------- --------- Other Charges (Income) Interest expense 1,332 972 3,291 2,760 Interest income (416) (436) (1,402) (1,158) Other (370) (540) (1,108) (1,490) --------- --------- --------- --------- Total other charges (income) 546 (4) 781 112 --------- --------- --------- --------- Income Before Income Taxes 42,682 34,434 119,802 100,800 Provision for Income Taxes 18,374 14,574 51,150 42,721 --------- --------- --------- --------- Net Income $ 24,308 $ 19,860 $ 68,652 $ 58,079 ========= ========= ========= ========= Earnings Per Common Share $ 0.57 $ 0.47 $ 1.61 $ 1.37 ========= ========= ========= ========= Average Number of Common Shares Outstanding 42,719 42,480 42,615 42,469 ========= ========= ========= ========= Cash Dividends Declared Per Common Share $ 0.12 $ 0.10 $ 0.36 $ 0.30 ========= ========= ========= =========
See Notes to Condensed Consolidated Financial Statements. 3 4 THE REYNOLDS AND REYNOLDS COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1996 AND SEPTEMBER 30, 1995 (In thousands)
6/30/96 9/30/95 --------- --------- INFORMATION SYSTEMS ASSETS Current Assets Cash and equivalents $ 5,543 $ 18,366 Accounts receivable 167,138 114,617 Inventories 53,109 37,796 Other current assets 46,694 17,412 --------- --------- Total current assets 272,484 188,191 Property, Plant and Equipment, less accumulated depreciation of $168,371 in 1996 and $153,584 in 1995 162,050 128,462 Goodwill 95,842 101,275 Other Intangible Assets 26,821 28,614 Other Assets 50,209 42,959 --------- --------- Total Information Systems Assets 607,406 489,501 --------- --------- FINANCIAL SERVICES ASSETS Finance Receivables 296,049 264,901 Cash and Other Assets 1,141 1,064 --------- --------- Total Financial Services Assets 297,190 265,965 --------- --------- TOTAL ASSETS $ 904,596 $ 755,466 ========= ========= INFORMATION SYSTEMS LIABILITIES Current Liabilities $ 155,121 $ 125,833 Long-Term Debt 90,629 41,443 Other Liabilities 58,484 55,153 --------- --------- Total Information Systems Liabilities 304,234 222,429 --------- --------- FINANCIAL SERVICES LIABILITIES Notes Payable 155,846 131,675 Other Liabilities 72,657 68,807 --------- --------- Total Financial Services Liabilities 228,503 200,482 --------- --------- SHAREHOLDERS' EQUITY Capital Stock 25,781 25,941 Additional Paid-In Capital 17,804 15,815 Other Adjustments (3,536) (3,581) Retained Earnings 331,810 294,380 --------- --------- Total Shareholders' Equity 371,859 332,555 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 904,596 $ 755,466 ========= =========
See Notes to Condensed Consolidated Financial Statements. 4 5 THE REYNOLDS AND REYNOLDS COMPANY AND SUBSIDIARIES CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND 1995 (In thousands)
1996 1995 -------- -------- INFORMATION SYSTEMS Cash Flows Provided By Operating Activities $ 75,310 $ 77,115 -------- -------- Cash Flows Provided By (Used For) Investing Activities Business combinations (77,523) (18,885) Capital expenditures (27,787) (22,577) Net proceeds from asset sales 5,958 3,159 Capitalization of software licensed to customers (3,307) (2,255) Repayments from (advances to) financial services 3,518 (7,366) -------- -------- Net cash flows used for investing activities (99,141) (47,924) -------- -------- Cash Flows Provided By (Used For) Financing Activities Additional borrowings 47,491 1,254 Principal payments on debt (6,159) (4,521) Cash dividends paid (14,837) (12,502) Capital stock issued 1,469 762 Capital stock repurchased (16,666) (24,529) -------- -------- Net cash flows provided by (used for) financing activities 11,298 (39,536) -------- -------- Effect of Exchange Rate Changes on Cash (290) (372) -------- -------- Decrease in Cash and Equivalents (12,823) (10,717) Cash and Equivalents, Beginning of Period 18,366 20,230 -------- -------- Cash and Equivalents, End of Period $ 5,543 $ 9,513 ======== ======== FINANCIAL SERVICES Cash Flows Provided By Operating Activities $ 10,634 $ 10,042 -------- -------- Cash Flows Provided By (Used For) Investing Activities Finance receivables originated (87,184) (85,973) Collections on finance receivables 56,025 47,037 -------- -------- Net cash flows used for investing activities (31,159) (38,936) -------- -------- Cash Flows Provided By (Used For) Financing Activities Additional borrowings 54,033 55,000 Principal payments on debt (29,862) (33,963) Advances from (repayments to) information systems (3,518) 7,366 -------- -------- Net cash flows provided by financing activities 20,653 28,403 -------- -------- Increase (Decrease) in Cash and Equivalents 128 (491) Cash and Equivalents, Beginning of Period 663 1,200 -------- -------- Cash and Equivalents, End of Period $ 791 $ 709 ======== ========
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, 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) INVENTORIES
6/30/96 9/30/95 ------- ------- Finished products $39,922 $33,064 Work in process 2,058 1,541 Raw materials and supplies 11,129 3,191 ------- ------- Total inventories $53,109 $37,796 ======= =======
(3) BUSINESS COMBINATIONS On April 22, 1996 the company announced a cash tender offer to acquire the outstanding shares of Duplex Products Inc. (Duplex) for $12 per share. On May 20, 1996 the company purchased the tendered shares of Duplex for a total purchase price of $89.8 million. Duplex, a provider of business forms and labels, electronic printing and mailing services, document management programs, forms automation solutions and process analysis to customers throughout the United States, reported sales of $275 million in 1995. The company initially financed this transaction through existing revolving credit agreements. Ultimately, the company expects to obtain new long-term financing and repay the revolving credit agreement borrowings. On January 23, 1996, the company purchased substantially all net assets of Jordan Graphics from Ruddick Corporation for $9.4 million, paid from existing cash balances. Jordan Graphics, a provider of business forms and document management services to customers located primarily in the eastern United States, had 1995 sales of over $50 million. These business combinations were accounted for as purchases and the accounts of the acquired companies were included in the company's financial statements since their respective dates of acquisition. Goodwill recorded in accounting for the Jordan transaction is being amortized on a straight-line basis over ten years. No goodwill was recorded for the Duplex transaction. The following unaudited pro forma results of operations give effect to the Jordan and Duplex business combinations as if they had occurred on October 1, 1994. The 1995 pro forma results combine the nine months ended June 30, 1995 for the company and Jordan and the nine months ended July 29, 1995 for Duplex. The 1996 pro forma results combine the nine months ended June 30, 1996 for all entities. These pro forma results of operations may not be indicative of the results of operations that actually would have been obtained if the business combinations had been in effect or that may be obtained in the future.
9 Months 9 Months 1996 1995 -------- -------- Net sales and revenues $951,121 $922,056 Income before extraordinary items 67,283 55,606 Net income 67,283 55,606 Earnings per common share 1.58 1.31
6 7 (4) SUBSEQUENT EVENTS On August 6, 1996 the company's board of directors authorized a two-for-one common stock split to be paid September 17, 1996 to shareholders of record as of September 3, 1996. The board also increased the regular quarterly dividend 17% from $.12 per share ($.06 per share post split) to $.14 per share ($.07 per share post split). At the same meeting the board also approved a new, broad-based employee stock option plan. This plan will offer substantially all employees the right to acquire a specific number of Reynolds Class A common shares at a fixed price for a term of ten years. Non qualified stock options will be awarded as of October 1 each year. The dollar value of stock options awarded to each employee will be equal to ten percent of salary. The option price will be equal to the fair market value of Reynolds Class A common shares as of the date of grant. (5) CASH FLOW STATEMENTS Reconciliation of net income to net cash provided by operating activities.
1996 1995 -------- -------- INFORMATION SYSTEMS Net Income $ 62,250 $ 52,223 Depreciation and Amortization 32,097 26,623 Deferred Income Taxes (3,110) (851) Deferred Income Taxes Transferred to Financial Services 225 7,097 Gains on Sales of Assets (2,909) (653) Changes in Operating Assets and Liabilities Accounts receivable (19,716) (10,441) Inventories 9,820 2,990 Prepaid expenses and other current assets (3,870) (504) Intangible and other assets (1,313) (7,233) Accounts payable (2,300) (3,681) Accrued liabilities 2,366 10,315 Other liabilities 1,770 1,230 -------- -------- Net Cash Provided by Operating Activities $ 75,310 $ 77,115 ======== ======== FINANCIAL SERVICES Net Income $ 6,402 $ 5,856 Deferred Income Taxes 3,482 11,425 Deferred Income Taxes Transferred from Information Systems (225) (7,097) Changes in Receivables, Other Assets and Other Liabilities 975 (142) -------- -------- Net Cash Provided by Operating Activities $ 10,634 $ 10,042 ======== ========
(6) 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 four 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. 7 8 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 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. 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. In connection with the acquisition of Duplex, the company became involved in one additional environmental remediation site. In 1994 Duplex was named a PRP as one of several thousand users of a solid waste landfill. At June 30, 1996 potential remediation costs are uncertain. The company has accrued its estimated share of response costs for all four environmental remediation sites as of June 30, 1996 and believes that the reasonably foreseeable resolution will not have a material adverse effect on the financial statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1996 AND 1995 (Dollars in thousands except per share data) BUSINESS COMBINATION On April 22, 1996 the company announced a cash tender offer to acquire the outstanding shares of Duplex Products Inc. (Duplex) for $12 per share. On May 20, 1996 the company purchased the tendered shares of Duplex for a total purchase price of $89.8 million. Duplex, headquartered in Sycamore, Illinois, provides business forms and labels, electronic printing and mailing services, document management programs, forms automation solutions and process analysis to customers throughout the United States. In 1995 Duplex reported annual sales of $275 million. At the time of the acquisition Duplex annual sales rate was about $230 million per year. The company expects Duplex sales to decline further to about $200 million as the business is integrated with existing operations and sales of lower margin products are deemphasized. During the period May 20, 1996 through June 30, 1996 Duplex operations contributed $.01 per share to the company's earnings. FACILITY SALE During the third quarter of 1996 the company sold its North Hollywood, California, printing facility and will consolidate operations into its Phoenix facility. This transaction resulted in a gain of $1.5 million, net of expenses associated with closing the facility and moving operations. This gain was reported as a reduction of cost of sales in the statement of consolidated income. The operating income effect of this gain was substantially offset by $.8 million of Canadian reorganization expenses and other SG&A expenses. 8 9 RESULTS OF OPERATIONS CONSOLIDATED SUMMARY
Third Quarter Nine Months -------------------------------------- --------------------------------------- 1996 1995 Change % Change 1996 1995 Change % Change -------- -------- ------- -------- -------- ------- -------- -------- Revenues $287,049 $231,198 $55,851 24% $777,420 $668,415 $109,005 16% Gross profits $133,821 $105,233 $28,588 27% $365,136 $303,821 $ 61,315 20% Operating income $ 43,228 $ 34,430 $ 8,798 26% $120,583 $100,912 $ 19,671 19% Net income $ 24,308 $ 19,860 $ 4,448 22% $ 68,652 $ 58,079 $ 10,573 18% Earnings per share $ 0.57 $ 0.47 $ 0.10 21% $ 1.61 $ 1.37 $ 0.24 18%
Consolidated revenues for the third quarter were the highest for any quarter in the company's history. Business forms, computer systems and financial services all posted double digit percentage sales increases over last year, for both the quarter and nine months. Business combinations from 1995 and 1996 increased consolidated revenues about $42 million in the third quarter and $71 million for nine months. Consolidated gross profit increased to 47.7% of information systems revenues in the third quarter, compared to 46.7% last year. Year-to-date gross profit was 48.2% of information systems sales, versus 46.6% last year. Computer systems gross profit percentage increased for both the third quarter and nine months. Business forms' gross profit margin rose over last year through nine months, but remained flat for the third quarter. Business forms third quarter gross profit margin included the effect of Duplex lower profit margins which was partially offset by the gain on the sale of the North Hollywood printing facility. Selling, general and administrative expenses increased to 33.6% of revenues in the third quarter from 32.9% last year and to 33.7% year-to-date from 32.6% a year ago. The increase over last year resulted primarily from investments in the newer computer systems businesses and products, the Canadian reorganization and acquisition integration expenses. Third quarter's consolidated operating income was also the highest for any quarter in the company's history. Business forms operating income increased 32% while computer systems' grew 22% and financial services rose 9% as compared to last year's third quarter. Year-to-date operating income grew 39% for business forms, 10% for financial services and 4% for computer systems. Annualized return on average shareholders' equity was 25%, slightly higher than last year's. COMPUTER SYSTEMS (excluding financial services)
Third Quarter Nine Months ------------------------------------------ --------------------------------------- 1996 1995 Change % Change 1996 1995 Change % Change ------ ------ -------- -------- ------- ------ -------- --------- Revenues $121,843 $103,997 $17,846 17% $349,396 $308,542 $40,854 13% Gross profit $ 59,589 $ 48,504 $11,085 23% $171,258 $144,557 $26,701 18% % of revenues 48.9% 46.6% 49.0% 46.9% Operating income $ 17,412 $ 14,258 $ 3,154 22% $ 50,578 $ 48,529 $ 2,049 4% % of revenues 14.3% 13.7% 14.5% 15.7%
Computer systems revenues grew for both the third quarter and nine months because of higher recurring service revenues, growing sales of newer products and the effect of fiscal year 1995 acquisitions. Higher electronic parts catalog sales also contributed to the year-to-date revenue increase. Recurring service revenues continued to grow because of the increased number of software applications supported. Sales of newer products and services such as Customer Marketing Services, SalesVision, consulting services and a document management system continued to grow. Business combinations contributed about $2 million of the segment's sales growth in the third quarter and $12 million year-to-date. Computer systems operating income grew over last year because of the sales growth and gross profit margin improvement which offset higher SG&A expenses. Gross profit margins increased for both the quarter and nine months primarily because of growth of higher margin recurring service revenues. SG&A expenses increased in total and as a percent of sales 9 10 because of investments in newer automotive products, Canadian reorganization expenses and investments in healthcare systems. Healthcare systems operating loss rose for both the third quarter and nine months because of higher SG&A expenses from implementing sales, marketing and product development strategies for future growth. BUSINESS FORMS
Third Quarter Nine Months ----------------------------------------- --------------------------------------- 1996 1995 Change % Change 1996 1995 Change % Change -------- -------- ------- ------- -------- -------- ------- -------- Revenues $158,614 $121,330 $37,284 31% $408,732 $343,522 $65,210 19% Gross profit $ 74,232 $ 56,729 $17,503 31% $193,878 $159,264 $34,614 22% % of revenues 46.8% 46.8% 47.4% 46.4% Operating income $ 22,095 $ 16,746 $ 5,349 32% $ 59,318 $ 42,643 $16,675 39% % of revenues 13.9% 13.8% 14.5% 12.4%
Business forms revenues rose for both the third quarter and nine months primarily because of the effect of 1995 and 1996 business combinations which contributed $40 million and $59 million of the sales increase for the quarter and nine months, respectively. Sales price pressures brought on by declining paper costs have partially offset the volume gains from acquisitions and new accounts. Gross profit margins declined from 47.5% in the second quarter to 46.8% in the third quarter primarily because of lower gross profit margins for Duplex, acquired May 20, 1996. Partially offsetting the effect of Duplex lower gross profit margins was the net gain on the sale of the North Hollywood facility. Excluding the effects of Duplex and North Hollywood, gross profit margins of 49% for the third quarter and 48.2% for the nine months improved over last year because of continuous improvement efforts in managing the sales mix, account profitability and production efficiencies. Also contributing to higher gross profit margins were lower paper costs which reduced LIFO inventory adjustments. During 1996 paper costs have declined reversing much of the increase from 1995. Business forms third quarter operating income grew significantly, primarily as a result of higher sales. Year-to-date, operating income grew because of higher sales, increased gross profit margins and lower SG&A expenses as a percentage of sales. SG&A expenses declined as a percentage of sales from last year for both the third quarter and nine months because of the effects of the business combinations. The company is in the process of implementing steps to integrate Duplex into the company's business forms organization. The company expects that these steps will raise Duplex profit margins to those of the company's other general business forms operations when the integration process is completed. FINANCIAL SERVICES
Third Quarter Nine Months ---------------------------------- ------------------------------------ 1996 1995 Change % Change 1996 1995 Change % Change ------ ------ ------- -------- ------- ------- ------ -------- Revenues $6,592 $5,871 $721 12% $19,292 $16,351 $2,941 18% Operating income $3,721 $3,426 $295 9% $10,687 $ 9,740 $ 947 10% % of revenues 56.4% 58.4% 55.4% 59.6%
Financial services revenues increased for the third quarter and nine months because of interest earned on higher average finance receivables. Average finance receivables increased 24% over last year because of strong computer 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 third quarter because of the effect of higher average borrowing costs. Bad debt expenses were slightly higher than last year through nine months. 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. 10 11 During the first nine months of fiscal year 1996 the company did not enter into any new interest rate management agreements because current market conditions made fixed rate debt more attractive. LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS Information systems strong cash flows from operating activities of $75,310 resulted primarily from information systems net income of $62,250. Capital expenditures of $27,787 occurred in the normal course of business. During the third quarter the company completed the acquisition of Duplex which accounted for the majority of cash spent on business combinations and cash received from new borrowings. The company paid cash dividends of $14,837 and repurchased $16,666 of capital stock in the first nine months of the fiscal year. 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 21% at June 30, 1996 and 13.4% at September 30, 1995. The increase resulted from borrowings to finance the Duplex transaction. Remaining credit available under existing revolving credit agreements was $40,785 at June 30, 1996. In addition to committed credit agreements, the company also has a variety of other short-term credit lines available. The company expects to obtain new long-term financing to permanently fund the Duplex purchase and retire the revolving credit agreement borrowings. 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 $36 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 August 12, 1996, 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. In August 1996, the board of directors authorized a two-for-one common stock split payable September 17, 1996 to shareholders of record as of September 3, 1996. The board also increased the quarterly dividend 17% to $.14 per Class A common share ($.07 per share post split). In November 1995, the company's board of directors raised the quarterly dividend 20%. The company has increased cash dividends per share ten 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 nine months of fiscal year 1996, the company repurchased 450,000 Class A common shares for $16,666, an average price of $37.03 per share. In July the company repurchased an additional 90,400 Class A common shares at an average price of $44.92 per share. As of July 31, 1996 the company could repurchase an additional 2,029,100 Class A common shares under existing board of directors' authorizations. ENVIRONMENTAL MATTERS See Note 6 to the Consolidated Financial Statements for a discussion of the company's environmental contingencies. 11 12 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 On June 3, 1996 the Company filed a report on Form 8-K regarding its purchase of Duplex Products Inc. On August 2, 1996 that filing was amended to include pro forma financial information. 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 August 12, 1996 /s/ David R. Holmes ---------------- -------------------------------------- David R. Holmes Chairman of the Board, President and Chief Executive Officer Date August 12, 1996 /s/ Dale L. Medford ---------------- -------------------------------------- Dale L. Medford Vice President, Corporate Finance and Chief Financial Officer 13 EX-27 2 EXHIBIT 27
5 1,000 9-MOS SEP-30-1996 OCT-01-1995 JUN-30-1996 5,543 0 170,520 3,382 53,109 272,484 330,421 168,371 904,596 155,121 232,029 25,781 0 0 346,078 904,596 524,037 777,420 300,531 392,992 0 0 9,927 119,802 51,150 68,652 0 0 0 68,652 1.61 1.61
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