<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1994
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
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Commission file number 0-132
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THE REYNOLDS AND REYNOLDS COMPANY
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(Exact name of registrant as specified in its charter)
Ohio 31-0421120
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
115 South Ludlow Street, Dayton, Ohio 45402
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (513) 443-2000
-------------------------
None
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(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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of May 5, 1994:
Class A Common shares, 42,507,276 net of 3,727,298 treasury shares;
Class B Common shares, 12,000,000.
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THE REYNOLDS AND REYNOLDS COMPANY AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
NUMBER
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Statements of Consolidated Income (Unaudited)
Three and Six Months Ended March 31, 1994 and 1993 3
Condensed Consolidated Balance Sheets (Unaudited)
March 31, 1994 and September 30, 1993 4
Statements of Consolidated Cash Flows (Unaudited)
Six Months Ended March 31, 1994 and 1993 5
Notes to Financial Statements (Unaudited) 6
Independent Accountants' Review Report 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Three and Six Months Ended March 31, 1994 and 1993 9
PART II. OTHER INFORMATION
Item 4. Results of Votes of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
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PART I - FINANCIAL INFORMATION
<TABLE>
ITEM 1. FINANCIAL STATEMENTS
THE REYNOLDS AND REYNOLDS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1994 AND 1993
(In thousands except per share data)
<CAPTION>
THREE MONTHS SIX MONTHS
------------------- -------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales and Revenues:
Information systems:
Business forms $111,819 $ 98,607 $212,370 $193,397
Computer systems 88,825 67,709 176,106 131,748
-------- -------- -------- --------
Total information systems 200,644 166,316 388,476 325,145
Financial services 4,815 4,826 9,625 9,517
-------- -------- -------- --------
Total net sales and revenues 205,459 171,142 398,101 334,662
-------- -------- -------- --------
Costs and Expenses:
Information systems:
Cost of sales:
Business forms 62,417 56,288 119,455 110,988
Computer systems 49,028 35,536 95,829 67,593
-------- -------- -------- --------
Total cost of sales 111,445 91,824 215,284 178,581
-------- -------- -------- --------
Selling, general and administrative expenses:
Business forms 38,644 33,181 73,700 65,833
Computer systems 27,126 21,558 54,230 42,125
-------- -------- -------- --------
Total selling, general and administrative expenses 65,770 54,739 127,930 107,958
-------- -------- -------- --------
Financial services 1,495 2,051 2,957 5,191
-------- -------- -------- --------
Total costs and expenses 178,710 148,614 346,171 291,730
-------- -------- -------- --------
Operating Income 26,749 22,528 51,930 42,932
-------- -------- -------- --------
Other Charges (Income):
Interest expense 899 817 1,762 1,818
Interest income (310) (543) (615) (1,008)
Other (222) (167) (352) (220)
-------- -------- -------- --------
Total other charges 367 107 795 590
-------- -------- -------- --------
Income Before Income Taxes 26,382 22,421 51,135 42,342
Provision for Income Taxes 10,913 9,082 21,257 17,228
-------- -------- -------- --------
Income Before Effect of Accounting Change 15,469 13,339 29,878 25,114
Effect of Accounting Change (19,106)
-------- -------- -------- --------
Net Income $ 15,469 $ 13,339 $ 29,878 $ 6,008
======== ======== ======== ========
Earnings Per Common Share:
Income before effect of accounting change $.35 $.30 $.68 $.58
Effect of accounting change (.44)
---- ---- ---- ----
Net income $.35 $.30 $.68 $.14
==== ==== ==== ====
Average Number of Common Shares Outstanding 44,309 43,823 43,990 43,919
====== ====== ====== ======
Cash Dividends Declared Per Common Share $.085 $.065 $.16 $.13
===== ===== ==== ====
<FN>
See Independent Accountants' Review Report and Notes to Financial Statements.
</TABLE>
3
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<TABLE>
THE REYNOLDS AND REYNOLDS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, 1994 AND SEPTEMBER 30, 1993
(In thousands)
<CAPTION>
3/31/94 9/30/93
--------- --------
<S> <C> <C>
ASSETS
INFORMATION SYSTEMS
Current Assets:
Cash and equivalents $ 5,617 $ 9,437
-------- --------
Accounts receivable (less allowance for doubtful accounts:
3/31/94----$3,856; 9/30/93----$6,090) 108,825 105,713
-------- --------
Inventories:
Finished products 34,569 29,478
Work in process 2,339 1,851
Raw materials and supplies 6,357 6,977
-------- --------
Total inventories 43,265 38,306
-------- --------
Deferred income taxes 8,502 8,576
-------- --------
Prepaid expenses and other assets 9,229 6,880
-------- --------
Total current assets 175,438 168,912
-------- --------
Property, Plant and Equipment 255,966 247,262
Less accumulated depreciation 140,997 136,085
-------- --------
Net Property, Plant and Equipment 114,969 111,177
-------- --------
Intangible Assets - Net:
Excess of cost over net assets of companies acquired 81,632 71,760
Software licensed to customers 16,653 17,500
Other 9,498 11,195
-------- --------
Total intangible assets - net 107,783 100,455
-------- --------
Other Assets 30,986 27,217
-------- --------
Total Information Systems Assets 429,176 407,761
-------- --------
FINANCIAL SERVICES
Finance Receivables - Net 174,733 161,711
Cash and Other Assets 854 1,079
-------- --------
Total Financial Services Assets 175,587 162,790
-------- --------
Total Assets $604,763 $570,551
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
INFORMATION SYSTEMS
Current Liabilities:
Current portion of long-term debt $ 559
Notes payable 2,525
Accounts payable 28,931 $ 28,138
Accrued liabilities 51,055 55,271
-------- --------
Total current liabilities 83,070 83,409
Long-Term Debt 41,267 40,000
Retirement and Other Liabilities 52,216 52,086
-------- --------
Total Information Systems Liabilities 176,553 175,495
-------- --------
FINANCIAL SERVICES
Notes Payable 87,538 87,688
Deferred Income Taxes 46,006 42,064
Other Liabilities 1,748 1,979
-------- --------
Total Financial Services Liabilities 135,292 131,731
-------- --------
CONTINGENCIES
SHAREHOLDERS' EQUITY
Capital Stock:
Preferred
Class A common 26,739 13,199
Class B common 375 188
Additional Paid-In Capital 1,508 2,693
Other Adjustments (3,668) (3,316)
Retained Earnings 267,964 250,561
-------- --------
Total Shareholders' Equity 292,918 263,325
-------- --------
Total Liabilities and Shareholders' Equity $604,763 $570,551
======== ========
<FN>
See Independent Accountants' Review Report and Notes to Financial Statements.
</TABLE>
4
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<TABLE>
THE REYNOLDS AND REYNOLDS COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED MARCH 31, 1994 AND 1993
(In thousands)
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
INFORMATION SYSTEMS
Cash Flows Provided by (Used for) Operating Activities:
Net income $25,880 $ 3,313
Adjustments to reconcile net income to net cash
provided by operating activities:
Effect of accounting change 19,106
Depreciation and amortization 15,207 11,442
Deferred income taxes (2,029) (624)
Deferred income taxes transferred
to financial services 2,062 635
Loss on sales of assets 297 151
Changes in operating assets and liabilities:
Accounts receivable (7,758) 298
Inventories (2,463) 3,367
Prepaid expenses, intangible and other assets (3,406) (927)
Accounts payable (752) (3,031)
Accrued and other liabilities (8,108) 1,737
------- -------
Net cash provided by operating activities 18,930 35,467
------- -------
Cash Flows Provided by (Used for) Investing Activities:
Acquisitions (4,895) (7,714)
Capital expenditures (9,231) (6,526)
Proceeds from sales of assets 794 587
Capitalization of software licensed to customers (1,541) (385)
Repayments from (advances to) financial services 440 (189)
------- -------
Net cash used for investing activities (14,433) (14,227)
------- -------
Cash Flows Provided by (Used for) Financing Activities:
Additional borrowings 2,675
Principal payments on debt (641)
Cash dividends paid (3,225) (2,784)
Capital stock issued 1,317 2,091
Capital stock repurchased (7,944) (10,402)
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Net cash used for financing activities (7,818) (11,095)
------- -------
Effect of Exchange Rate Changes on Cash (499) (1,093)
------- -------
Increase (Decrease) in Cash and Equivalents (3,820) 9,052
Cash and Equivalents - Beginning of Period 9,437 23,838
------- -------
Cash and Equivalents - End of Period $ 5,617 $32,890
======= =======
FINANCIAL SERVICES
Cash Flows Provided by Operating Activities $5,359 $3,478
Cash Flows Used for Investing Activities (5,036) (3,228)
Cash Flows Used for Financing Activities (590) (666)
------ ------
Decrease in Cash and Equivalents (267) (416)
Cash and Equivalents - Beginning of Period 996 963
------ ------
Cash and Equivalents - End of Period $ 729 $ 547
====== ======
<FN>
See Independent Accountants' Review Report and Notes to Financial Statements.
</TABLE>
5
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THE REYNOLDS AND REYNOLDS COMPANY AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(Dollars in thousands except per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, the accompanying consolidated financial
statements contain all significant adjustments (which consist only of normal
recurring adjustments) necessary to present fairly the financial position
(unaudited) of the company as of March 31, 1994 and September 30, 1993, the
results of operations (unaudited) for the three and six months ended March 31,
1994 and 1993 and cash flows (unaudited) for the six months ended March 31,
1994 and 1993.
(2) BUSINESS COMBINATIONS
On January 3, 1994, the company acquired substantially all of the assets and
assumed certain liabilities of Law Printing Company Inc. for $13,075. The
purchase price was paid by issuing 612,692 Class A common shares. Law, a
manufacturer of business forms primarily for automobile dealerships, had annual
sales of about $11,000 in 1993. The acquisition was accounted for as a
purchase and the accounts of Law were included in the company's financial
statements since January 3, 1994. The excess of the acquisition cost over the
fair value of net assets acquired is being amortized on a straight-line basis
over ten years. The acquisition of Law was considered a non-cash transaction
for accounting purposes and, accordingly, is not included in the statement of
cash flows.
On January 5, 1994, the company acquired all outstanding shares of Formcraft
Inc. for $4,895 in cash. Formcraft, a manufacturer of general business forms
with strong forms management services, had annual sales of about $17,000 in
1993. The acquisition was financed with internally generated cash. The
acquisition was accounted for as a purchase and the accounts of Formcraft were
included in the company's financial statements since January 5, 1994. The
excess of the acquisition cost over the fair value of net assets acquired is
being amortized on a straight-line basis over ten years.
<TABLE>
<CAPTION>
Allocation of Purchase Prices:
Law Formcraft
------- ---------
<S> <C> <C>
Current assets $ 2,112 $3,548
Property, plant and equipment 613 4,541
Other assets 58
Excess of cost over net assets acquired 13,129 358
Liabilities assumed (2,779) (3,610)
------- ------
Totals $13,075 $4,895
======= ======
</TABLE>
(3) CASH FLOW STATEMENTS
The following supplemental information has been presented to aid in the
analysis of the statements of consolidated cash flows for the six months ended
March 31, 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
------- --------
<S> <C> <C>
Income Taxes Paid:
Information systems $18,538 $16,232
Financial services 820 2,196
Interest Paid:
Information systems $ 1,707 $ 1,718
Financial services 2,410 3,019
</TABLE>
6
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(4) DIVIDENDS DECLARED
On February 17, 1994, the company's board of directors raised the quarterly
dividend to $.085 per share to be paid on April 13, 1994. Dividends declared,
but not paid as of March 31, 1994 and 1993, were not included in the statements
of consolidated cash flows. Cash dividends paid in April 1994 and 1993 were
$3,709 and $2,794, respectively. On May 2, 1994, the board of directors
declared a regular quarterly dividend of $.085 per share payable June 10, 1994
to shareholders of record May 20, 1994.
(5) STOCK SPLIT
On February 17, 1994, the company's board of directors approved a two-for-one
common stock split. As a result of the split, on March 15, 1994, common
shareholders received one additional share for each share held as of March 1,
1994. Par value remained $.625 per Class A common share and $.03125 per Class
B common share. The company reclassified $13,199 to Class A common and $187 to
Class B common from additional paid-in capital because par value did not
change. Share and per share information presented in the accompanying
financial statements was restated to reflect the stock split.
(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 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 March 31, 1994.
The second site involves a municipal waste disposal facility owned and operated
by four municipalities. Because the remedial investigation and feasibility
study is not yet completed, potential remediation costs are highly uncertain.
The company has shared costs with other PRPs for the remedial investigation and
feasibility study of the site. Remediation costs for a typical CERCLA site on
the National Priorities List average about $30,000. The company has accrued an
estimate of its share of remediation costs as of March 31, 1994. Management
believes that the reasonably foreseeable resolution will not have a material
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 in Hillsborough County, Florida. 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. Following an investigation by the company into
possible past connection with or use of the facility in question, the company
believes that it did not have any involvement with the facility. However, the
company is considering joining a group of PRPs planning to propose a de minimis
settlement if that proves to be an economically feasible alternative.
Management believes that the reasonably foreseeable resolution of this matter
will not have a material effect on the financial statements.
7
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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 March 31, 1994, and the
related statements of consolidated income for the three and six months ended
March 31, 1994 and 1993 and consolidated cash flows for the six months ended
March 31, 1994 and 1993. 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 review
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 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, 1993 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 15, 1993, we
expressed an unqualified opinion, with an explanatory paragraph as to the
Company's change in method of accounting for postretirement benefits other than
pensions to conform with Statement of Financial Accounting Standards No. 106,
on those consolidated financial statements. In our opinion, the information
set forth in the accompanying condensed consolidated balance sheet as of
September 30, 1993 is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE
May 6, 1994
8
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ITEM 2.
THE REYNOLDS AND REYNOLDS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1994 AND 1993
(Dollars in thousands except per share data)
STOCK SPLIT
On February 17, 1994, the company's board of directors approved a two-for-one
common stock split. As a result of the split, on March 15, 1994, common
shareholders received one additional share for each share held as of March 1,
1994. Par value remained $.625 per Class A common share and $.03125 per Class
B common share. This split represented the sixth time the company has split
its stock two-for-one since the initial public offering in 1961. The last such
split occurred in November 1992. The accompanying financial information was
restated to reflect the latest stock split.
BUSINESS COMBINATIONS
On January 5, 1994, the company purchased Formcraft Inc. for $4,895 in cash.
Formcraft, a Houston-based manufacturer of general business forms with strong
forms management services, had annual sales of about $17,000 in 1993.
On January 3, 1994, the company purchased certain net assets of Law Printing
Company Inc. for $13,075 of stock. Law, a California-based manufacturer of
business forms primarily for automobile dealerships, had annual sales of about
$11,000 in 1993.
On June 29, 1993, the company purchased COIN Inc. for $29,633 in cash. COIN,
based in Atlanta, had one of the larger installed bases of customers in the
automobile dealership systems industry, and had historically been a leader in
automating the finance and insurance function of the dealership. Revenues of
the acquired COIN business were about $55,000 in 1992.
On May 4, 1993, the company purchased certain net assets of BVI Information
Systems Ltd., a small Montreal-based provider of computer systems for
automobile dealerships.
On March 3, 1993, the company purchased certain net assets of Woodbury Business
Systems, an Atlanta-based sales organization for a regional business forms
supplier. Woodbury sales were about $15,000 in 1992.
RESULTS OF OPERATIONS
CONSOLIDATED SUMMARY
Consolidated net sales and revenues increased $34,317 or 20% in the second
quarter and $63,439 or 19% for the six months. Excluding the effect of
acquisitions, revenues grew $14,247 or 8% in the second quarter and $28,292 or
9% for six months primarily because of a significant increase in computer
systems products. Computer systems order backlogs were exceptionally strong at
March 31, 1994 and should support strong third quarter sales.
Information systems gross profit increased $14,707 or 20% in the second quarter
and $26,628 or 18% year-to-date, consistent with the sales growth. As a
percent of information systems sales, the gross profit margin declined slightly
in the quarter and six months as an increase in business forms was offset by a
decrease in computer systems products.
Selling, general and administrative (SG&A) expenses declined slightly as a
percent of sales. A reduction in computer systems SG&A expenses, as a percent
of sales, was partially offset by an increase in business forms SG&A expenses.
9
<PAGE> 10
Consolidated operating income increased $4,221 or 19% in the second quarter and
$8,998 or 21% year-to-date with computer systems, business forms and financial
services all contributing significantly.
The effective income tax rate was 41.4% in the quarter and 41.6% for six months
compared to 40.5% and 40.7% last year. The increase resulted from federal tax
legislation which became law in August 1993.
Second quarter net income of $15,469 or $.35 per share increased $2,130 or 16%
over last year. Year-to-date net income of $29,878 or $.68 per share increased
$4,764 or 19% before the effect of accounting change. Earnings growth caused
annualized return on equity to reach 20.7% compared to 19.9% last year, before
the effect of accounting change. In late March and early April 1994, 639,400
shares were repurchased which will reduce weighted average shares outstanding
in the third quarter.
The company adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," and
recorded a transition charge of $19,106 or $.44 per share in the first quarter
of 1993.
BUSINESS FORMS SEGMENT
Net sales increased $13,212 or 13% in the second quarter. Excluding the effect
of acquisitions, second quarter sales increased $4,104 or 4%. Value-added
automotive forms and forms management services sales increased about 10%,
primarily as a result of higher volume. Automotive forms also included a
modest price increase. These sales increases were partially offset by a 12%
decline in sales of commodity paper products. Commodity paper products
experienced declines in both sales volume and average sales prices.
Year-to-date sales increased $18,973 or 10%. Excluding the effect of
acquisitions, six month sales increased $6,249 or 3% reflecting the same trends
as the second quarter.
In the second quarter, gross profit increased $7,083 or 17% to 44.2% of sales
compared to 42.9% last year. Year-to-date, gross profit increased $10,506 or
13% to 43.8% of sales versus 42.6% last year. Gross profit increased because
of strong growth in value-added automotive forms sales. Commodity paper
products gross profit margins remained at low levels.
SG&A expenses were 34.6% and 34.7% of sales for the second quarter and six
months, respectively. This compares to 33.6% and 34.0% last year. The primary
reason for this increase was additional investment in marketing and selling
activities.
Operating income increased $1,620 or 18% in the quarter and $2,639 or 16%
year-to-date as a result of strong increases in automotive forms. The second
quarter also benefited from the acquisitions of Law and Formcraft. General
printing profitability improved slightly from the first quarter, however, it
continues at relatively low operating margins and continues to be the focus of
profit improvement efforts. Commodity paper products profitability continues
at the relatively low operating margins of recent quarters.
COMPUTER SYSTEMS PRODUCTS
Revenues increased $21,116 or 31% in the quarter and $44,358 or 34% for six
months with about half of the increase as a result of the 1993 acquisitions of
COIN Inc. and BVI Information Systems Ltd. Revenues also increased because of
ERA computer systems sales and recurring revenues. ERA computer systems sales
increased significantly as a result of greater unit sales at slightly lower
average systems prices. Average systems prices declined slightly because of
the sales mix, reduced computer equipment cost and competition in the
marketplace. Recurring revenues grew steadily because of continued increase in
the number of ERA and electronic parts catalog software applications supported.
This trend in recurring revenues should continue throughout 1994. The backlog
of new orders for automotive computer systems remained exceptionally strong at
March 31, 1994. This backlog should support strong computer systems sales
10
<PAGE> 11
in the third quarter. Medical computer sales and operating income declined
from last year for both the quarter and six months because of uncertainty in
the healthcare industry, which first affected operations in the second quarter
of fiscal 1993.
Gross profit increased $7,624 in the quarter and $16,122 year-to-date, but
declined to 44.8% and 45.6% of sales, respectively. In 1993, gross profit
represented 47.5% of sales in the quarter and 48.7% of sales for six months.
In spite of reduced computer equipment costs, gross profit declined, as a
percent of sales, because of the sales mix, competition in the marketplace and
lower gross profit on medical computer systems. Also reducing the gross profit
percent was the hiring of additional installation personnel to help the company
satisfy increased demand for its products. These employees typically train for
about four to five months. During this period, the company incurs expenses
without additional revenues being generated. In the second half of the year,
the company expects gross profit to increase as these installers become fully
productive.
As a percent of sales, SG&A expenses declined about 1% of sales for both the
quarter and six months primarily as a result of increased software
capitalization from internal development activities.
Operating income increased $2,056 or 19% in the second quarter and $4,017 or
18% through six months. Strong operating income from automotive computers was
the primary reason operating income rose significantly.
FINANCIAL SERVICES
Revenues were relatively flat for both the quarter and six months compared to
last year. The lease portfolio grew because of strong computer systems sales.
However, interest income did not increase because of lower interest rates on
new leases as compared to leases maturing.
Operating income increased $545 or 20% in the second quarter and $2,342 or 54%
year-to-date because of favorable bad debt experience and improved interest
rate spreads. Bad debt expenses declined $300 in the quarter and $1,550
through six months because of a reduction in lease defaults. The allowance for
losses was also lowered slightly because of the improved default experience.
It is expected that the favorable second quarter bad debt variances will
continue in the third and fourth quarters. Interest expense also declined $241
in the second quarter and $548 year-to-date because of lower borrowing rates.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Information systems strong operating cash flow of $18,930 resulted from record
net income. Cash flow was used to fund investments in working capital,
acquisitions and capital expenditures. Working capital increased because of
the timing of payroll accruals and higher sales, which increased accounts
receivable. During the quarter, the company acquired Formcraft for $4,895 in
cash. The Law transaction was considered a non-cash transaction because its
net assets were exchanged for stock of $13,075. As such, this transaction was
not included in the cash flow statement. Capital expenditures of $5,600 in
computer systems and $3,600 in business forms occurred in the normal course of
business. Cash was also returned to shareholders in the form of dividends and
share repurchases. See the shareholders' equity section for a discussion of
dividends and share repurchases.
Financial services operating cash flow and collections on finance receivables
were invested in new leases of the company's products and used to make
scheduled debt repayments.
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CAPITALIZATION
The company's ratio of total debt (total information systems debt) to
capitalization (total information systems debt plus shareholders' equity) was
13.2% at March 31, 1994 and September 30, 1993. The company maintains
revolving credit agreements, of which $31,800 was available at March 31, 1994.
The company also has a variety of short-term credit lines available. The
company expects cash balances and internally generated cash to be sufficient to
fund 1994 normal operations, which include anticipated capital expenditures of
about $18,000.
SHAREHOLDERS' EQUITY
The company's Class A common shares are listed 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 May 5, 1994, none of these preferred shares were outstanding and the company
had no agreements or commitments with respect to the sale or issuance of these
shares.
During 1993, the board of directors authorized the repurchase of two million
Class A common shares for treasury of which 418,800 were repurchased. The
company repurchased 360,700 Class A common shares at an average price of $22.02
per share during the six months ended March 31, 1994. In early April 1994, the
company repurchased 278,700 additional Class A common shares at an average
price of $22.66. On May 2, 1994, the board of directors authorized the
repurchase of an additional two million Class A common shares for treasury.
This brings the remaining balance of shares authorized for repurchase to
2,941,800 at May 5, 1994.
In February 1994, the board of directors raised the quarterly dividend to $.085
per Class A common share, an increase of 13%. This action followed increases
of 15% in November 1993 and 18% in 1992. Cash dividends have been raised seven
times since 1989 and paid each quarter since the company's initial public
offering in 1961.
ENVIRONMENTAL MATTERS
See Notes to Financial Statements (Note 6 - Contingencies).
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<PAGE> 13
PART II - OTHER INFORMATION
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
At the Annual Meeting of Shareholders on February 17, 1994, the
shareholders of the Company voted on the following issues.
Issue 1 Election of Directors to three-year terms expiring in 1997
<TABLE>
<CAPTION>
Shares Shares
For Withheld
---------- --------
<S> <C> <C>
Dale L. Medford 23,404,897 223,927
Robert C. Nevin 23,402,167 226,657
Gayle B. Price, Jr. 23,402,122 226,702
Kenneth W. Thiele 23,398,672 230,152
</TABLE>
Issue 2 Appointment of Deloitte and Touche as Independent Auditors
Shares For 23,508,177 Shares Against 75,051 Shares Abstain 45,596
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
No exhibits are required to be filed for the quarter ended
March 31, 1994.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended
March 31, 1994.
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<PAGE> 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 May 6, 1994 /s/ Dale L. Medford
------------------ --------------------------------------
Dale L. Medford, Vice President,
Corporate Finance and Chief Financial
Officer
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