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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. [FEE REQUIRED]
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FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. [NO FEE REQUIRED]
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FOR THE TRANSITION PERIOD FROM _______________ TO _______________.
COMMISSION FILE NO. 0-132
THE REYNOLDS AND REYNOLDS COMPANY
(Exact name of registrant as specified in its charter)
OHIO 31-0421120
(State of Incorporation) (IRS Employer Identification No.)
115 SOUTH LUDLOW STREET
DAYTON, OHIO 45402
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (937) 485-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
CLASS A COMMON SHARES PAR VALUE $.625 PER SHARE NEW YORK STOCK EXCHANGE
- ----------------------------------------------- -----------------------
(Title of class) (Exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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(Title of class)
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 .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in the
definitive proxy or in any amendment to this Form 10-K. X
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The aggregate market value of the Class A Common Shares held by
non-affiliates of the registrant, as of November 1, 1996, was $2,088,792,381.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of November 1, 1996:
Class A Common Shares: 80,983,063 (exclusive of 11,380,329 Treasury shares)
Class B Common Shares: 20,000,000
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
(Dollars In Thousands)
ITEM 1. BUSINESS
GENERAL
The Reynolds and Reynolds Company, an Ohio corporation, incorporated in
1889, operates principally in two business segments -- computer systems and
business forms.
COMPUTER SYSTEMS
The computer systems segment offers its products and services to the
automotive and healthcare markets. The company markets turnkey information
management systems and professional services primarily to automobile dealers.
The hardware portion of the systems come from manufacturers who specialize in
platforms for industry-standard operating systems. The application software
products are either owned by the company or obtained from third parties and
licensed to end users. Some of the software products offered include standard
programs for accounting, payroll, vehicle and parts inventory control, service
merchandising and scheduling, leasing, finance and insurance, parts and vehicle
locators, manufacturer communications, new and used vehicle retailing, and
electronic document imaging. Other applications link dealerships to credit
bureaus to verify the credit worthiness of prospective customers, process and
approve credit documentation and electronically process vehicle registrations in
five states. The company also markets computer products and services directly to
automobile manufacturers.
Hardware maintenance, software support and training and other
professional services are integral parts of the company's turnkey approach to
marketing computer systems. These services are provided by service and support
personnel located in nearly 200 offices in the United States and Canada.
The Healthcare Systems Division markets a similar array of turnkey
computer systems and services to physician groups and integrated healthcare
delivery networks. Products include software and services that address the
administrative and clinical processes that enhance the practice of medicine.
The company also provides financial services to automotive and
healthcare customers throughout the United States and Canada. Financial services
typically consist of financing sales of the companies' computer systems
products.
BUSINESS FORMS
The business forms segment offers its products and services to
customers in the automotive, healthcare and general business markets. It
operates 19 manufacturing facilities in the United States and Canada.
In the automotive market, the company offers its products and services
to all departments of automobile, truck and recreational vehicle dealerships
including sales, parts, service, finance and insurance, and accounting. The
company also markets its products and services to related-automotive businesses
such as repair garages, auto parts stores, service stations and body shops. The
products and services include standard and custom business forms (including
dealer image products), forms management services, promotional items, custom
designed filing systems, dealership customer satisfaction measurement and
management services, customer prospecting services, and promotional mailing
services.
In the healthcare market, the company offers standard and custom forms
and forms management services to hospitals and large healthcare organizations.
In the general business markets, the company offers a wide variety of
paper-based and electronic business document solutions to value-seeking
businesses. Solutions offered include standard and custom business forms,
electronic business forms, on-demand printing services, checks, labels, mailers,
stationery, envelopes and tickets. Many of these business documents incorporate
a broad range of security features to help deter fraudulent document
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reproduction and counterfeiting. The company also offers a wide variety of forms
management solutions to help customers improve their productivity: forms survey
and analysis, inventory management and reporting, cost center reporting, low
stock reporting, distribution services and process work flow reengineering
services. Additionally, pegboard accounting systems are sold to smaller
businesses through a network of office supply dealers and independent forms
distributors.
NEW PRODUCTS
In the computer systems segment, the company introduced SalesVision,
an advanced ERA(R) application which employs the latest multimedia and client
server technology to aid auto dealership salespeople to prospect for customers
and to make sales presentations. The company also added ERA Customer Loyalty
Management, an integrated tool to monitor the customer service experience.
Using its DealerNet(R) service, the company introduced an on-line
credit application service for automotive consumers over the Internet. It
also released a new entry level document storage solution and, through
acquisition, enhanced its consulting services by adding specialized service,
parts and body shop operations.
In the business forms segment, the company expanded document solutions
and outsourcing capability through two strategic acquisitions and by internal
product development. The acquisitions added electronic print and mail
services, labels and integrated product capability, an electronic catalog and
requisitioning tool and expanded forms and documents management services.
Internal developments included digital publishing services, fulfillment
services, process consulting capability and expanded electronic forms and
workflow automation capability.
In healthcare, the company expanded its product line with major
software enhancement releases designed to extend overall functionality,
marketability and customer value.
RAW MATERIALS
An adequate supply of paper products is essential to the company's
business forms segment. The company obtains those products from a variety of
sources and, historically has not experienced any difficulty in obtaining them.
An adequate supply of paper is expected for the foreseeable future and is not
anticipated to adversely impact the company's ability to fully meet the needs of
customers.
Computer hardware is essential to the company's computer systems
segment. This hardware comes from a variety of sources, principally Silicon
Graphics, Inc. in the automotive sector and Hewlett Packard and IBM in the
healthcare sector. Historically, the company has experienced an ample supply.
In the opinion of the company, loss of one or more if its present
suppliers of either paper products or computer hardware would not have a
significant impact on the company's operations because of the general
availability of alternate sources at competitive prices.
PATENTS, TRADEMARKS AND RELATED RIGHTS
Except as described below, the company does not have any patents,
trademarks, licenses, franchises or concessions which are material to an
understanding of the company's business.
The company's trademark REYNOLDS & REYNOLDS(R) is associated with many
goods and services provided by the company. In the computer systems segment, the
company has a number of direct and indirect distribution and licensing
arrangements with equipment vendors and software providers relating to certain
components of Reynolds' products, including the principal operating systems.
Such arrangements are in the aggregate, but not individually (except for the
operating systems), material to Reynolds' business.
COMPETITION
Both in the provision of computer systems products and services and in
the manufacture and sale of business forms, the company is subject to
competition from a number of other business organizations, some of
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which have substantially greater assets and financial resources than the
company. The company believes that it competes by providing high value products
and services that meet customers' changing needs and which utilize current
technology to provide additional value and to improve price and performance. The
company has specialized in selected markets and has emphasized service and
long-term relationships to meet customer needs more effectively. While no single
customer represents 5% or more of the revenues of either principal business
segment, the company does have several significant customers whose loss, in the
aggregate, could be material to the business forms segment. The company believes
that the likelihood of losing all of such customers is remote.
BACKLOG
COMPUTER SYSTEMS: The backlog represents unbilled computer systems or
terminals which have not yet been shipped to customers. At November 1, 1996,
the dollar value of the product backlog, including software license fees, is
estimated to be $30,100 compared with $25,600 last year.
BUSINESS SYSTEMS: The company manufactures several thousand different types of
standard and custom business forms. At November 1, 1996, the dollar value of
the printing backlog is estimated to be $26,200 compared with $18,900 last
year.
RESEARCH AND DEVELOPMENT
During fiscal 1996, the company continued its research and development
of in-house computer systems, terminal products, electronic image-based systems,
information exchange products and printing plant automation. In addition to
those programs, the company also had several other development projects of
lesser magnitude. Expenditures for all such activities were approximately
$24,400 in 1996, $21,000 in 1995 and $18,100 in 1994.
ENVIRONMENTAL PROTECTION
The company believes that it is in substantial compliance with all
applicable federal, state and local statutes concerning environmental
protection. The company has not experienced any material costs in this regard.
The U.S. Environmental Protection Agency has designated the company as one of a
number of potentially responsible parties under the Comprehensive Environmental
Response, Compensation and Liability Act at four environmental remediation
sites. (See Note 11 to the consolidated financial statements, page 52.)
EMPLOYEES
On October 1, 1996, the company and its subsidiaries had 7,544
employees. It is party to a number of collective bargaining agreements with
union locals which represent an aggregate of approximately 264 employees at its
Dayton, Ohio, Hagerstown, Maryland and Lebanon, Indiana plants.
ITEM 2. PROPERTIES
As of September 30, 1996, the company operated 18 forms manufacturing
plants in the United States and one in Canada encompassing approximately 2
million square feet. Of those, more than 1.5 million square feet are owned
outright by the company. The remaining .5 million square feet are leased.
Corporate headquarters and the respective headquarters of the business forms
segment and the computer systems segment are located in Dayton, Ohio in several
buildings owned by the company which contain more than .5 million square
feet. In addition, the company leases approximately 200 sales offices and more
than 29 warehouses throughout the country.
The company has no encumbrances securing long-term debt as of September
30, 1996, on its owned facilities.
Substantially all printing and other equipment used in the manufacture
of business forms and systems is owned by the company and its subsidiaries.
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The company believes its properties are in good condition and adequate
for current activities. See Note 2 to the consolidated financial statements on
pages 39-40 regarding assets held for sale..
ITEM 3. LEGAL PROCEEDINGS
Relevant information appears in Note 11 to the consolidated financial
statements on page 52.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
(Dollars In Thousands Except Per Share Data)
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
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. The company currently has no agreements or commitments with respect to
the sale or issuance of the preferred shares.
Information on market prices and dividends is set forth below:
CLASS A COMMON SHARES SALE PRICES*
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------------
Fiscal Quarter High Low High Low
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First $19.69 $16.50 $12.94 $11.13
- ----------------------
Second $20.50 $18.31 $14.25 $11.63
- ----------------------
Third $26.63 $21.38 $15.31 $13.00
- ----------------------
Fourth $27.00 $22.31 $18.19 $15.13
- ----------------------------------------------------------------------------------------------
<CAPTION>
CASH DIVIDENDS PAID*
Class A Common Class B Common
- ----------------------------------------------------------------------------------------------
Months 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
January $.06 $.05 $.003 $.0025
- ----------------------
April $.06 $.05 $.003 $.0025
- ----------------------
June $.06 $.05 $.003 $.0025
- ----------------------
September $.07 $.05 $.0035 $.0025
- ----------------------------------------------------------------------------------------------
<FN>
* Reflects the two-for-one stock split of the company's Common Shares
effective September 3, 1996.
</TABLE>
As of November 1, 1996, there were approximately 2,750 holders of
record of Class A Common Shares and one holder of record of Class B Common
Shares. See Note 5 to the consolidated financial statements on pages 43 and 44
regarding the amount of retained earnings available for dividends.
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ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For The Years Ended September 30 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED
Net Sales and Revenues
Information systems $1,074,180 $888,580 $789,306 $ 677,748 $625,634
Financial services 26,263 22,311 19,488 19,218 19,190
---------- -------- -------- --------- --------
Total net sales and revenues $1,100,443 $910,891 $808,794 $ 696,966 $644,824
========== ======== ======== ========= ========
Income Before Effect of Accounting Changes $ 93,738 $ 78,594 $ 66,204 $ 52,522 $ 38,092
Effect of Accounting Changes(1) (19,106) 1,100
---------- -------- -------- --------- --------
Net Income $ 93,738 $ 78,594 $ 66,204 $ 33,416 $ 39,192
========== ======== ======== ========= ========
Earnings Per Common Share(2)
Income before effect of accounting changes $ 1.10 $ .92 $ .76 $ .60 $ .41
Effect of accounting changes(1) (.22) .01
---------- -------- -------- --------- --------
Net income $ 1.10 $ .92 $ .76 $ .38 $ .42
========== ======== ======== ========= ========
Return on Equity
Income before effect of accounting changes 26.6% 25.1% 23.8% 20.2% 14.8%
Net income 26.6% 25.1% 23.8% 12.9% 15.3%
Cash Dividends Per Class A Common Share(2) $ .25 $ .20 $ .165 $ .13 $ .1125
Book Value Per Outstanding Common Share(2) $ 4.55 $ 4.01 $ 3.47 $ 3.07 $ 2.95
Assets
Information systems $ 610,362 $489,501 $430,592 $ 407,761 $366,173
Financial services 313,282 265,965 204,107 162,790 155,672
---------- -------- -------- --------- --------
Total assets $ 923,644 $755,466 $634,699 $ 570,551 $521,845
========== ======== ======== ========= ========
Long-Term Debt
Information systems $ 84,601 $ 41,443 $ 41,014 $ 40,000 $ 28,284
Financial services 93,589 92,425 76,638 62,771 70,250
---------- -------- -------- --------- --------
Total long-term debt $ 178,190 $133,868 $117,652 $ 102,771 $ 98,534
========== ======== ======== ========= ========
Number of Employees 7,544 6,036 5,478 5,636 4,995
INFORMATION SYSTEMS
(with financial services on an equity basis)
Current Ratio 1.90 1.81 2.27 2.21 2.23
Net Property, Plant and Equipment $ 167,667 $128,462 $117,485 $ 111,177 $105,014
Total Debt $ 99,092 $ 51,649 $ 41,301 $ 40,000 $ 37,713
Total Debt to Capitalization 21.0% 13.4% 12.4% 13.2% 12.8%
<FN>
(1) Represents the cumulative effect of accounting changes for the adoption
of Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions"
in 1993 and SFAS No. 109, "Accounting for Income Taxes" in 1992.
(2) Reflects the two-for-one common stock split effective September 3,
1996.
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BUSINESS ENVIRONMENT
AUTOMOTIVE MARKET
Automobile dealerships represent a significant number of customers for the
company's products and services. The number of automobile dealerships remained
about the same as last year as the automotive business environment was stable in
1996. In October 1996, economists projected calendar year 1996 new vehicle sales
to be over 15 million units for the third year in a row. Those same economists
also projected about 15 million new vehicle sales in calendar year 1997.
Automobile dealerships generate revenues and profits from a variety of products
and services. Sales of used vehicles, replacement parts and maintenance services
are the major sources of a typical dealership's profits. Strong used vehicle
sales are expected to continue because of the increased supply of previously
leased vehicles. The trend of franchises consolidating into megadealerships is
expected to continue, in part, in response to increased competition from used
car superstores. Used car superstores represent a small but growing segment of
the automobile retail channel. A few megadealerships have raised capital through
public equity offerings to fund the acquisition of additional dealerships. These
superstores and megadealerships have sophisticated information management needs
for which the company's products and services provide solutions.
GENERAL BUSINESS MARKET
Companies are continuing to seek ways to offload non-strategic activities and
streamline their document systems to improve organizational efficiency and
increase effectiveness. This growing trend is favorable for the company's forms
management programs which simplify, standardize, automate and integrate
customers' information management and document usage.
In calendar year 1995 paper manufacturers increased prices several times because
of increased demand for paper. As a result, the company's cost of paper
increased significantly in 1995 and the company raised business forms sales
prices accordingly. The company's cost of paper declined in 1996 as paper
manufacturers lowered paper prices because of reduced demand for paper.
HEALTHCARE MARKET
The healthcare market continued to move toward managed care in 1996. This
industry is experiencing significant growth in integrated healthcare delivery
networks and large group practices as physicians strive to operate efficiently
in a managed care environment. The information systems needs of this market are
complex as systems must integrate among healthcare providers, claims processors,
insurance companies and regulatory agencies. In 1996, the company aggressively
invested in sales, marketing and product development resources to provide the
information management solutions required by this market.
SIGNIFICANT EVENTS
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 price
of $89,800. Duplex 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. Although Duplex
reported annual sales of $275,000 in fiscal year 1995, at the time of the
acquisition Duplex annual sales rate was about $230,000 per year. The company
expects Duplex sales to decline further to about $200,000 as the business is
integrated with existing operations and sales of lower margin products are
deemphasized.
From 1994 through 1996 the company purchased fifteen additional businesses in
the automotive, healthcare and general business forms markets. Automotive
business combinations consisted primarily of new products to supplement the
company's existing product offerings. Healthcare and general business forms
acquisitions resulted
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in stronger products and services offerings and additional customers for the
company. See Note 2 to the Consolidated Financial Statements for additional
disclosures about the company's business combinations.
STOCK SPLIT
On August 6, 1996, the company's board of directors approved a two-for-one
common stock split. As a result of the split, common shareholders received one
additional share for each share held as of September 3, 1996. This split was the
third such split since November 1992 and the seventh split since the company's
initial public offering in 1961. All share and per share information presented
in this annual report reflects the stock split.
BUSINESS FORMS RESTRUCTURING
In 1994, the company recorded a $12,400 restructuring charge for costs to be
incurred in the disposal of part of its computer paper product line and the
consolidation of certain custom business forms printing operations. General
business forms operations restructured to focus on value-added solutions for
customers and to improve profitability. The company discontinued the manufacture
of certain low-margin computer paper products and closed its Chambersburg,
Pennsylvania plant. The company also closed its custom business forms plant in
Chestertown, Maryland and several distribution facilities and sales offices.
This transaction generated $11,500 of income tax benefits which more than offset
the negative after-tax effect of the restructuring charge. See Note 1 to the
Consolidated Financial Statements for additional disclosures about the
restructuring.
RESULTS OF OPERATIONS
CONSOLIDATED
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
1996 1995 1994 Change Change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $1,100,443 $910,891 $808,794 $189,552 21% $102,097 13%
Gross profit $510,525 $417,935 $359,392 $92,590 22% $58,543 16%
Operating income $164,825 $137,015 $98,067 $27,810 20% $38,948 40%
Net income $93,738 $78,594 $66,204 $15,144 19% $12,390 19%
Earnings per share $1.10 $0.92 $0.76 $0.18 20% $0.16 21%
</TABLE>
Consolidated net sales and revenues set a record for the fourth consecutive year
in 1996. Computer systems, business forms and financial services revenues all
grew significantly in 1996 and 1995. The net effect of business combinations and
divestitures was to increase consolidated sales $133,000 in 1996 and $9,000 in
1995.
Consolidated gross profit represented 47.5% of information systems sales,
compared to 47.0% in 1995 and 45.5% in 1994. The gross profit percentage
increased in 1996 primarily as a result of strong growth in computer systems
recurring revenues. Business forms gross profit percentage declined in 1996 as
production efficiencies were offset by lower gross profit margins for Duplex.
Gross profit increased in 1995 primarily because of business forms improvement
as a result of the 1994 restructuring. Computer systems gross profit percentage
also rose in 1995.
Consolidated operating income grew significantly in 1996 and 1995 primarily
because of higher business forms operating income. Computer systems and
financial services operating income also rose in 1996 and 1995. In 1994, the
company recorded a $12,400 restructuring charge and $2,793 of business forms
restructuring related costs and environmental expenses. As a percentage of
sales, operating income was 15% in 1996 and 1995, and 12% in 1994 (14% excluding
restructuring and related charges).
Total other charges were $2,582 in 1996, $260 in 1995 and $745 in 1994. Other
charges increased in 1996 because of higher net interest expense related to the
Duplex transaction. Net interest expense was relatively flat during 1995 and
1994 as information systems debt balances and interest rates remained relatively
stable.
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The effective income tax rate was 42.2% in 1996, compared to 42.5% in 1995 and
32.0% in 1994. The 1996 tax rate included the benefits of certain tax credits
which will not repeat in 1997. The 1996 tax rate would have been 42.8% excluding
these benefits. In 1994, the company recorded an $11,500 tax benefit associated
with the computer paper divestiture. The company also recorded $581 of tax
expense related to the sale of the French subsidiary. The 1994 effective tax
rate was 41.8%, excluding the effect of the computer paper and French
divestitures.
The company's 1996 net income and earnings per share set a record for the fifth
straight year and significantly exceeded last year's strong results. The
after-tax effect of 1994's restructuring charge, restructuring related costs and
environmental expenses increased 1994's net income by $840 or $.01 per share. In
1996, return on average shareholders' equity was 26.6% compared to 25.1% in 1995
and 23.8% in 1994.
COMPUTER SYSTEMS (excluding financial services)
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
1996 1995 1994 Change Change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $478,994 $422,678 $363,763 $56,316 13% $58,915 16%
Gross profit $234,280 $198,667 $169,031 $35,613 18% $29,636 18%
% of revenues 48.9% 47.0% 46.5%
Operating income $69,751 $64,138 $59,254 $5,613 9% $4,884 8%
% of revenues 14.6% 15.2% 16.3%
</TABLE>
In 1996 computer systems revenues grew primarily because of higher recurring
service revenues, growing sales of newer products and the effect of fiscal year
1995 business combinations. Recurring service revenues continued to grow
primarily because of the increased 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. Sales of newer products and
services such as Customer Marketing Services, SalesVision, consulting services
and a document management system continued to grow. Automotive and healthcare
business combinations contributed about $12,000 of the segment's revenue growth
in 1996. In 1995 computer systems revenues increased because of higher unit
sales of the company's ERA(R) computer systems to automobile dealers, higher
recurring service revenues and the net effect of acquisitions and the 1994
divestiture of operations in France. Recurring service revenues continued to
grow because strong systems sales increased the number of software applications
supported. Automotive and healthcare business combinations, net of the effect of
the divestiture in France, contributed about $13,000 of the segment's revenue
growth in 1995.
Computer systems gross profit percentage increased primarily because the higher
margin recurring service revenues became a greater part of the revenue mix.
Selling, general and administrative (SG&A) expenses were 34.3% of revenues in
1996, compared to 31.8% of revenues in 1995 and 30.2% in 1994. The 1996 and 1995
increases in SG&A expenses, as a percentage of revenues, reflected new
investments in both the automotive and healthcare businesses. Automotive
investments were new products and services oriented. Healthcare investments
involved integrating two acquisitions with the existing business and
implementing sales, marketing and product development strategies for future
growth.
Computer systems operating income grew, but declined as a percentage of sales in
both 1996 and 1995 because of new investments in healthcare systems.
Automotive's operating margin was relatively constant during the last three
years. Healthcare systems continued to operate at a loss in 1996 because of the
aggressive investments in the organization's products and capabilities.
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BUSINESS FORMS
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
1996 1995 1994 Change Change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $595,186 $465,902 $425,543 $129,284 28% $40,359 9%
Gross profit $276,245 $219,268 $190,361 $56,977 26% $28,907 15%
% of revenues 46.4% 47.1% 44.7%
Operating income $80,629 $59,716 $25,741 $20,913 35% $33,975 132%
% of revenues 13.5% 12.8% 6.0%
</TABLE>
In 1996 business forms revenues rose primarily because of the effect of 1995 and
1996 business combinations which contributed $121,000 of the sales increase. The
remaining sales increase resulted from strong growth in sales of forms
management products and services, which was partially offset by reduced volume
for other custom forms sales. In 1995 business forms revenues increased
primarily because of growth in forms management products and services and the
effect of sales price increases on both automotive and general business forms.
In 1995 sales of businesses acquired were less than sales lost in the 1994
divestiture of certain low margin products. The company raised sales prices in
1995 in response to rising paper costs.
Business forms gross profit percentage declined in 1996 because of the effect of
lower gross profit margins of Duplex. Excluding the effect of Duplex, gross
profit margins were 48.5% in 1996. Also favorably contributing to gross profit
margins were lower paper costs which reduced LIFO inventory adjustments. In 1995
business forms gross profit percentage increased primarily because of the
successful completion of the 1994 restructuring which improved the sales mix and
reduced operating expenses. In 1995, the company experienced significantly
higher paper costs accounted for under the LIFO method. The effect of the higher
paper costs reported in cost of sales was offset by higher sales prices.
SG&A expenses were 32.9% of revenues in 1996, compared to 34.3% in 1995 and
35.8% in 1994. SG&A expenses declined, as a percentage of revenues in 1996
primarily because of business combinations which provided strong revenue growth
and lower SG&A expenses as a percentage of sales. The company also further
reduced SG&A expenses by eliminating duplicate administrative functions of the
companies acquired. SG&A expenses in 1994 included restructuring related costs
and environmental expenses.
Business forms operating income increased significantly in 1996 because of
higher sales and the successful integration of 1995 and 1996 business
combinations. In 1995 business forms operating income grew substantially over
1994 which included a $12,400 restructuring charge, $1,043 of restructuring
related costs and $1,750 of environmental expenses. Excluding these expenses
from 1994, operating income increased $18,782 or 46% over 1994. Operating income
was $40,934 (excluding the aforementioned expenses) or 10% of sales in 1994.
FINANCIAL SERVICES
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
1996 1995 1994 Change Change
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $26,263 $22,311 $19,488 $3,952 18% $2,823 14%
Operating income $14,445 $13,161 $13,072 $1,284 10% $89 1%
% of revenues 55.0% 59.0% 67.1%
</TABLE>
Average finance receivables grew 22% in 1996 and 27% in 1995 as a result of
strong computer systems sales. Financial services revenues grew significantly
each of the last two years because of the increased receivable balances. The
average interest rate earned on the receivable portfolio declined slightly in
both 1996 and 1995 because interest rates on new receivables were less than
those for maturing receivables.
10
<PAGE> 11
Financial services operating income grew solidly in 1996 because of the revenue
growth. In 1995 operating income increased only slightly because the revenue
growth was largely offset by higher interest expense as a result of rising
interest rates on borrowings. In 1996 average interest rates on borrowings were
about the same as 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
that over time it has reduced interest expense by using interest rate management
agreements and variable rate debt instead of directly obtaining fixed rate debt.
During 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. See Note 5 to the Consolidated Financial Statements for
additional disclosures regarding the company's interest rate management
agreements.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Information systems strong cash flow from operating activities of $110,345
resulted primarily from record net income. During the third quarter of fiscal
year 1996, the company completed the purchase of Duplex which accounted for the
majority of cash spent on business combinations and cash received from new
borrowings. See the business combinations section of this analysis and Note 2 to
the Consolidated Financial Statements for additional information regarding these
transactions. Capital expenditures of $39,980 occurred in the normal course of
business. Capital expenditures in the ordinary course of business are
anticipated to be about $45,000 to $50,000 in fiscal year 1997. The company also
paid cash dividends of $20,594 and repurchased $33,323 of capital stock in
fiscal year 1996. See the shareholders' equity caption of this analysis for a
further discussion of dividends and share repurchases.
Financial services operating cash flow, collections on finance receivables and
additional borrowings 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
21.0% at September 30, 1996 and 13.4% at September 30, 1995. Available credit
under existing revolving credit agreements was $33,580 at September 30, 1996. In
addition to committed credit agreements, the company also has a variety of other
short-term credit lines available. In fiscal year 1997, the company expects to
obtain new long-term financing to permanently fund the Duplex purchase and repay
the related revolving credit borrowings. The company estimates that cash flow
from operations and cash available from existing credit agreements will be
sufficient to fund fiscal year 1997 normal operations.
SHAREHOLDERS' EQUITY
The company lists its Class A common shares on the New York Stock Exchange.
There is no principal market for Class B common shares. The company also has an
authorized class of 60 million preferred shares with no par value. As of
November 11, 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.
The company paid cash dividends of $20,594 in 1996, $16,651 in 1995 and $14,226
in 1994. Dividends per Class A common share were $.25 in 1996, $.20 in 1995 and
$.165 in 1994. 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 1996, the
board of directors raised the quarterly dividend 14% to $.08 per Class A common
share. The quarterly dividend was also increased 17% in August 1996. The company
has increased cash dividends eleven times since 1989 and paid dividends each
year since the company's initial public offering in 1961.
11
<PAGE> 12
The company has conducted an active share repurchase program during recent years
to provide additional returns to shareholders. The company repurchased $33,323
of Class A common shares in 1996, $35,079 in 1995 and $39,083 in 1994. Average
prices paid per share were $20.83 in 1996, $12.93 in 1995 and $11.80 in 1994. As
of September 30, 1996 the company could repurchase an additional 3,539,000 Class
A common shares under existing board of directors' authorizations.
ENVIRONMENTAL MATTERS
See Note 11 to the Consolidated Financial Statements for a discussion of the
company's environmental contingencies.
ACCOUNTING STANDARDS
See Note 12 to the Consolidated Financial Statements for a discussion of the
effect of accounting standards which the company has not yet adopted.
SUBSEQUENT EVENT
See Note 13 to the Consolidated Financial Statements for a discussion of a
proposed business combination.
ITEM. 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial information required by Item 8 is contained in Item 14 of
Part IV (pages 25 and 26) of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
12
<PAGE> 13
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age, background information and term for each of the
company's directors and nominees are as follows:
<TABLE>
<CAPTION>
NOMINEES FOR TERMS EXPIRING IN 2000
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION AND FIVE YEAR EMPLOYMENT HISTORY SINCE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cleve L. Killingsworth, Jr. 44 President, Kaiser Permanente's Mid-Atlantic States Region since ----
March 1996; President of Kaiser Permanente's Ohio Region from
August 1994 to March 1996; prior thereto, Senior Vice President
of health care operation for Blue Cross and Blue Shield of
Rochester since January 1986. Kaiser Permanente, a non-profit
group practice health plan, is the country's largest health
maintenance organization.
Dale L. Medford(1) 46 Vice President, Corporate Finance and Chief Financial Officer. 1991
Gayle B. Price, Jr. 66 Chairman and Chief Executive Officer, Price Brothers Company, 1976
manufacturer of concrete construction materials.
Kenneth W. Thiele 80 Private Investor. 1975
<CAPTION>
NOMINEE FOR TERM EXPIRING IN 1998
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION AND FIVE YEAR EMPLOYMENT HISTORY SINCE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert C. Nevin(1) 56 President, Business Systems Division. 1985
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE IN 1999
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION AND FIVE YEAR EMPLOYMENT HISTORY SINCE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dr. David E. Fry 53 President and Chief Executive Officer, Northwood University. 1987
Richard H. Grant, III 57 Private Investor since October 1994; prior thereto, Senior 1960
Vice President, International, Computer Systems Division of The
Reynolds and Reynolds Company.
David R. Holmes(1) 56 Chairman of the Board, President and Chief Executive 1987
Officer.(2)
Martin D. Walker 64 Chairman and Chief Executive Officer of M. A. Hanna Company, an 1991
international specialty chemicals company.(3)
<CAPTION>
DIRECTORS WHOSE TERMS EXPIRE IN 1998
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION AND FIVE YEAR EMPLOYMENT HISTORY SINCE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Joseph N. Bausman(1) 53 President, Automotive Systems Division since February 1995; 1989
prior thereto President, Computer Systems Division.
Richard H. Grant, Jr.(1) 83 Chairman of the Steering Committee and father of Richard H. 1939
Grant, III.
Allan Z. Loren 58 Executive Vice President and Chief Information Officer of 1996
American Express Company since May 1994; President and CEO of
Galileo International (a global computer reservation system
company owned by 11 airlines) from January 1993 to May 1994;
President and CEO of Covia Partnership (computer reservation
system company) from January 1991 to January 1993 at which time
Covia and Galileo merged.(4)
(Footnotes on following page)
</TABLE>
13
<PAGE> 14
(1) Also executive officer of the company.
(2) Mr. Holmes also serves as a director of The Dayton Power & Light
Company.
(3) Mr. Walker also serves as a director of Textron, Inc., Comerica Inc.
and The Timken Company.
(4) Mr. Loren also serves as a director of U.S. Cellular Corporation.
The executive officers of the company are elected by the Board of
Directors at its meeting immediately following the Annual Meeting of
Shareholders to serve generally for a term of one year. The executive officers
of the company, other than those shown above as of November 1, 1996 are:
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS
NAME AGE PRINCIPAL OCCUPATION AND FIVE YEAR EMPLOYMENT HISTORY
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
H. John Proud 48 President, Healthcare Systems Division since February 1995; prior thereto
Senior Vice President and General Manager, Automotive Systems Division.
Michael J. Gapinski 46 Treasurer and Assistant Secretary.
Adam M. Lutynski 54 General Counsel and Secretary.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following tables and narrative text discuss the compensation paid
to the company's Chief Executive Officer and the company's four other most
highly compensated executive officers during the fiscal year ended September 30,
1996, and the two prior fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------- ------------------------------
NAME AND OPTION LTIP ALL OTHER
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) AWARDS (#)(1) PAYOUTS ($) COMPENSATION ($)(2)
- ------------------------- ------- ----------- ----------- ------------- ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
David R. Holmes 1996 466,575 487,095 439,600 466,575 38,232
- ---------------
Chairman of the Board, 1995 452,975 362,380 53,280 452,975 34,460
President and Chief 1994 439,250 351,400 624,320 409,229 24,394
Executive Officer
Robert C. Nevin 1996 286,463 302,985 18,480 229,170 36,977
- ---------------
President, Business 1995 278,120 221,757 24,720 222,496 32,950
Systems Division 1994 269,750 194,980 345,040 201,050 28,401
Joseph N. Bausman 1996 286,463 258,298 18,480 229,170 25,777
- -----------------
President, Automotive 1995 278,120 214,152 24,720 222,496 23,080
Systems Division 1994 269,750 215,800 345,040 201,050 16,914
Dale L. Medford 1996 218,003 216,689 11,520 152,602 13,936
- ---------------
Vice President 1995 211,657 158,744 15,360 148,161 12,820
Corporate Finance and 1994 205,250 153,938 228,240 133,856 11,915
Chief Financial Officer
H. John Proud 1996 221,250 131,667 13,920 177,000 11,380
- -------------
President, Healthcare 1995 194,815 146,113 11,040 141,908 10,508
Systems Division
(Footnotes on following page)
</TABLE>
14
<PAGE> 15
(1) Option Awards reflect the company's September 3, 1996 two-for-one stock
split.
(2) The 1996 amounts disclosed in this column include:
<TABLE>
<CAPTION>
ABOVE MARKET
DEFINED IMPUTED INTEREST INTEREST ON TOTAL
CONTRIBUTION ON SPLIT DOLLAR DEFERRED OTHER
NAME PLANS($) LIFE INSURANCE($)(1) COMPENSATION($) (2) COMPENSATION($)
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
David R. Holmes 2,697 23,815 11,720 38,232
Robert C. Nevin 2,475 20,254 14,248 36,977
Joseph N. Bausman 2,475 16,202 7,100 25,777
Dale L. Medford 2,697 8,053 3,186 13,936
H. John Proud 2,697 8,683 0 11,380
<FN>
(1) The life insurance component is provided on a split dollar
basis with each participant paying the term equivalent premium
and the company paying the remainder of the premium. At
termination of the policy, all premium payments made by the
company are reimbursed. Interest was imputed on the amount
receivable from the participant at the company's short-term
investment rate.
(2) The named executives (except Mr. Proud) entered into Deferred
Compensation Agreements with the company whereby income was
deferred for four years in order to provide individual
retirement benefits at age 65 of up to $100,000 per year for a
fixed term of 15 years. The deferrals were completed as of
September 30, 1989. Benefits payable are reduced for early
retirement and lump sum distributions are available at the
participant's discretion. The amounts presented represent the
above market interest earned on the funds deferred and were
calculated assuming a 15 year payment stream at age 65.
</TABLE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants(1)
--------------------------------------------------------------
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED ANNUAL
OPTIONS RATES OF STOCK PRICE
GRANTED TO EXERCISE APPRECIATION FOR
NUMBER OF EMPLOYEES IN OR OPTION TERM
OPTIONS FISCAL YEAR BASE PRICE EXPIRATION -------------------------
NAME GRANTED(2) (%) ($/Share)(2) DATE 5%($) 10%($)
- ------------------- ----------- ------------ ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
David R. Holmes 439,600 44.5193 17.25 10/02/05 4,768,971 12,085,508
Robert C. Nevin 18,480 1.8715 17.25 10/02/05 200,499 508,053
Joseph N. Bausman 18,480 1.8715 17.25 10/02/05 200,499 508,053
Dale L. Medford 11,520 1.1667 17.25 10/02/05 124,974 316,709
H. John Proud 13,920 1.4097 17.25 10/02/05 151,010 382,689
<FN>
(1) No Stock Appreciation Rights (SARs) were awarded in the 1996 fiscal
year.
(2) Grants were made on October 2, 1995, with the exercise price equal to
the fair market value ($17.25) on that date. Options vest 25% annually
beginning October 2, 1996. The number of shares and option price
reflect the September 3, 1996 stock split.
</TABLE>
15
<PAGE> 16
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED FY-END FY-END
ON REALIZED EXERCISABLE/ EXERCISABLE/
EXERCISE VALUE UNEXERCISABLE UNEXERCISABLE
NAME (#)(1) ($) (#) ($)
---- ----------- --------- ----------------- --------------------
<S> <C> <C> <C> <C>
David R. Holmes 39,400 313,913 0 / 1,071,720 0 /12,680,415
Robert C. Nevin 39,768 726,676 23,740 / 367,180 385,436 / 4,941,577
Joseph N. Bausman 0 0 13,620 / 367,180 207,578 / 4,941,577
Dale L. Medford 5,802 93,059 37,760 / 242,160 721,095 / 3,259,800
H. John Proud 0 0 9,600 / 168,920 150,844 / 2,248,945
<FN>
(1) The number of shares reflects the September 3, 1996 stock split.
</TABLE>
LONG-TERM INCENTIVE PLAN -- AWARDS
IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS UNDER
NON-STOCK PRICE-BASED PLANS
PERFORMANCE OR ---------------------------------------------
OTHER OTHER PERIOD THRESHOLD TARGET MAXIMUM
NAME RIGHTS UNTIL PAYOUT ($) ($) ($)
- --------------------------- --------- ------------------ ------------ -------------- ---------------
<S> <C> <C> <C> <C> <C>
David R. Holmes (1) (1) 0 233,288 466,576
Robert C. Nevin (1) (1) 0 114,585 229,170
Joseph N. Bausman (1) (1) 0 114,585 229,170
Dale L. Medford (1) (1) 0 76,301 152,602
H. John Proud (1) (1) 0 88,500 177,000
<FN>
(1) Participants in the Intermediate Plan (including Mr. Holmes who
participates in his own substantially similar plan), which is
considered a long-term incentive plan, are determined strictly by grade
level within the company. No formal awards are made and there are no
vested rights. Annual amounts are paid to participants with the amount
of the award dependent upon the company's three year average return on
equity. The periods considered in the calculation are the most recent
fiscal year and the preceding two years. The Threshold and Maximum
measurements are the same as those used to determine annual bonuses.
The potential annual payout amounts reported here were calculated using
fiscal year 1996 salaries. The payout for fiscal year 1996 is
included in the LTIP Payout column of the Summary Compensation Table.
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
PENSION PLAN TABLE (1)
YEARS OF SERVICE (2)
------------------------------------------------------------------------------
REMUNERATION 10 15 20 25 30
- ------------------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 300,000 $ 45,000 $ 67,500 $ 90,000 $112,500 $135,000
400,000 60,000 90,000 120,000 150,000 180,000
500,000 75,000 112,500 150,000 187,500 225,000
600,000 90,000 135,000 180,000 225,000 270,000
700,000 105,000 157,500 210,000 262,500 315,000
800,000 120,000 180,000 240,000 300,000 360,000
900,000 135,000 202,500 270,000 337,500 405,000
1,000,000 150,000 225,000 300,000 375,000 450,000
1,100,000 165,000 247,500 330,000 412,500 495,000
1,200,000 180,000 270,000 360,000 450,000 540,000
1,300,000 195,000 292,500 390,000 487,500 585,000
1,400,000 210,000 315,000 420,000 525,000 630,000
1,500,000 225,000 337,500 450,000 562,500 675,000
1,600,000 240,000 360,000 480,000 600,000 720,000
1,700,000 255,000 382,500 510,000 637,500 765,000
1,800,000 270,000 405,000 540,000 675,000 810,000
<FN>
(1) This table sets forth the annual retirement benefits payable under the
company's qualified pension plan and the non-qualified Supplemental
Retirement Plan ("Supplemental Plan") upon retirement at age 65 based
on an employee's final average annual compensation. Compensation as
defined in the Plans includes Salary, Bonus and Long-Term Incentive
Plan payments. The qualified pension benefits are reduced by 1.67% of
monthly primary Social Security benefits multiplied by years of
credited service up to a maximum of 30 years. The Supplemental Plan
provides benefits to participants who would lose benefits because of
legislative limits imposed on qualified plans or because of their
participation in the company's Non-Qualified Deferred Compensation
Plan. Additional benefits provided under the Supplemental Plan for
participants with employment agreements are not included in the table
but are discussed below with employment agreements. Participation in
the Supplemental Plan requires approval by the Board. Optional payment
forms of actuarial equivalence are also available.
(2) Respective years of service as of September 30, 1996, for the persons
named in the Summary Compensation Table are: Mr. Holmes, 11;
Mr. Nevin, 10; Mr. Bausman, 31; Mr. Medford, 22; and Mr. Proud, 25.
In addition to the plans discussed above, the company also provides
compensation or death benefits generally payable over 10 years,
beginning at the earlier of retirement or death of the employee. The
compensation benefit is equal to either 100%, 150% or 200% of the
current year's total cash compensation depending upon the respective
officer's grade level. The company generally insures against its
obligations through the purchase of life insurance policies on the
lives of such officers.
</TABLE>
EMPLOYMENT AGREEMENTS
Effective October 1, 1995, Mr. Holmes entered into an amended and
restated agreement by which he agrees to remain employed by the company as its
President and Chief Executive Officer until October 3, 2000, at an annual base
salary of $436,300 which may not be reduced without his consent or resolution by
arbitration. This base salary may be increased from time to time consistent with
the recommendations of the Compensation Committee and as approved by the Board
of Directors. The retirement benefit at age 59 is 65% of final average annual
compensation. The age 55 early retirement benefit is 61% of final average annual
compensation which thereafter increases by an additional 1% of final average
annual compensation for each additional twelve month period of employment,
including retirement after age 59.
Mr. Holmes' agreement also provides for special grants of non-qualified
stock options on October 1, 1995 and October 1, 1996, of 400,000 shares and
200,000 shares, respectively. (Reflects the September 3, 1996,
17
<PAGE> 18
two-for-one stock split.) Both grants are at fair market value on the date of
the grant. These grants are in addition to the customary annual awards made
under the company's stock option plan in which Mr. Holmes is a participant.
Messrs. Bausman, Nevin and Proud have Employment Agreements by which
they each agree to remain employed by the company until, respectively, May 31,
2000, September 30, 1997, and September 1, 1999, at respective annual base
salaries of $280,160, $252,000 and $210,000 which may not be reduced without the
individual's consent or resolution by arbitration. These base salaries may be
increased from time to time consistent with the recommendations of the
Compensation Committee and as approved by the Board of Directors.
Age 65 retirement benefits for Messrs. Bausman and Nevin are 65% of
final average annual compensation. Early retirement benefits for them are 55% of
final average annual compensation (reduced by 1/15 for each year of service, as
defined in the company's pension plan, less than 15) if they retire after
reaching age 55 and before reaching age 58. If they elect early retirement after
reaching age 58, their respective annual retirement benefits shall be 55% of
final average annual compensation plus 1% for each additional twelve-month
period of service after age 58, but before reaching age 65, with no reduction if
their respective years of service are fewer than 15. Mr. Proud's retirement
benefits are those provided under the company-sponsored qualified and
non-qualified programs in which he participates.
The Employment Agreements of Messrs. Holmes, Nevin and Bausman also
provide for certain disability and death benefits, including retirement benefits
as described above in case of permanent disability. The Agreements also provide
for continued medical coverage of the surviving spouses for a period which ends
at the earlier of the spouse's death or 42 months after the employee's death.
During the terms of the Agreements and for two years after the respective
terminations of them, or the cessation of payments made under them (whichever is
later), each employee shall not compete directly or indirectly with the company.
Mr. Proud's coverage in the case of death or disability is that provided under
the company-sponsored programs in which he participates. However, if Mr. Proud's
Agreement is not renewed, his non-competition restriction shall continue for
only one year.
All four Agreements generally provide that if the employee is
discharged by the company before the expiration date other than for cause (as
defined in the Agreements), or if the company fails to renew the Agreements
other than for cause, the employee shall be entitled to receive (i) payments
equal to the employee's Annual Compensation Value (as defined in the
Agreements), reduced by 70% of compensation from subsequent employment
(reduction does not apply to Mr. Proud) (a) for two years from the date of
termination of employment with respect to discharge before the expiration of the
Agreements, or (b) for one year from the expiration of the Agreements in the
case of non-renewal; (ii) credit for certain amounts of additional service under
the Supplemental Plan (iii) continuing coverage under company-sponsored medical
benefits programs ending at the earlier of employee's securing other employment
or two years from termination; (iv) reimbursement of up to $20,000 in
out-placement fees; and (v) required payments under the employee's (except for
Mr. Proud) Deferred Compensation Agreement.
These Employment Agreements also contain provisions which may require
the company to fund an escrow immediately in the event of a "change in control"
(as defined in such Agreements) of the company. Funding is required upon the
occurrence of any "escrow funding event," as defined in such Agreements. The
company estimates that if Messrs. Holmes, Nevin, Bausman and Proud had been
terminated on November 1, 1996, following a change in control of the company,
the total severance payments by the company to the officers under their
Agreements would have been $9,877,501. If such termination were to occur, the
non-competition restrictions in the respective Employment Agreements are void
and non-binding.
These Employment Agreements also provide that: (i) the employee will be
entitled to receive the escrowed amount upon a Change in Control Termination
that occurs within 24 months of a change in control; (ii) the employee will
receive an additional 24 months of service credit under the Supplemental Plan
following a Change in Control Termination; (iii) the payments to be made upon a
Change in Control Termination include a payment equal to three times the
employee's annual salary in effect at the date of termination or immediately
prior to the change in control (whichever is higher) and his average bonus with
respect to the three calendar years preceding the year in which his termination
of employment occurs; (iv) if the total amount of any payments payable to the
employee upon the termination of the employee's employment or upon a change in
control (whether or not pursuant to the severance provisions) would be subject
to an excise tax as "parachute payments" pursuant to Sections 280G and 4999 of
18
<PAGE> 19
the Internal Revenue Code of 1986, the amount of the severance payments under
the severance provisions will be reduced to avoid such excise tax, but only if
the net effect of such reduction is to increase the net after tax income to the
executive; and (v) the amount paid into escrow shall be the amount described in
clause (iii) as may be limited pursuant to clause (iv) and for periodic
adjustment of such amount. The Employment Agreements of Messrs. Holmes and
Nevin further provide that (i) if the employee voluntarily terminates
employment or is discharged by the company other than for "cause" (as defined
therein) prior to attainment of age 55, he will be entitled to receive,
commencing at age 55, a portion of his annual retirement benefits prorated to
reflect his service with the company; and (ii) upon a Change in Control
Termination prior to the date he attains age 55, the employee will be entitled
to receive, commencing at age 55, retirement benefits equal to 61% and 55% of
his final average compensation, respectively. Mr. Bausman's Employment
Agreement further provides that (i) if he voluntarily terminates his employment
or is discharged by the company prior to his attainment of age 55, he will be
entitled to receive under the Supplemental Plan a portion of his age 55 benefit
prorated to reflect his service with the company after November 9, 1987, in
excess of his vested Pension Plan benefit and the Officer's Life Insurance and
Compensation Program benefits; and (ii) upon a Change in Control Termination
prior to the date he attains age 55, he will be entitled to receive, commencing
at age 55, retirement benefits equal to 55% of his Final Average Compensation.
PERFORMANCE GRAPH
FISCAL YEARS 1992 THROUGH 1996
Comparison of Five Year Cumulative Total Return Among The Reynolds and
Reynolds company, S&P 500 Index and a Composite of Two Indices
================================================================================
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) Reynolds S&P 500 Peer Group
<S> <C> <C> <C>
9/91 100 100 100
9/92 175 111 101
9/93 318 125 124
9/94 412 130 146
9/95 572 169 209
9/96 880 203 264
</TABLE>
Illustrates the value of $100 invested at Sept. 30, 1991 assuming
reinvestment of dividends.
================================================================================
The graph compares the cumulative total shareholder return on a $100 investment
in the company's Class A Shares for the last five fiscal years with the
cumulative total return on $100 invested in each of (i) the S&P 500 Index and
(ii) a composite of two indices. The composite index is comprised of the S&P
Computer Software and Services Index and a self-constructed business forms index
and is adjusted each year to reflect the percent of the company's business
segments' revenues represented by each index. The company selected the following
business forms companies for its self-constructed index: American Business
Products, Inc., Ennis Business Forms, Inc., Moore, Ltd., New England Business
Services, Inc., Standard Register Company and Wallace Computer Services, Inc.
Duplex Products Inc. ("Duplex") previously reported in the self-constructed
business forms index was excluded for
19
<PAGE> 20
all years presented as Duplex was acquired by the company in May 1996. The graph
assumes all investments were made at market value on September 30, 1991, and the
reinvestment of all dividends.
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
COMMITTEE
The Compensation Committee of the Board of Directors consists entirely
of nonemployee, independent Directors. The Committee reviews, recommends and
approves changes to the company's compensation policies and programs applicable
to the company's officers and senior personnel.
COMPENSATION POLICY AND OBJECTIVES
Our primary goal as members of the Compensation Committee is unchanged
from last year: to assure that the compensation provided to executives is linked
to the company's business strategies and objectives, thereby aligning the
financial interests of senior management with those of the shareholders. Beyond
that, our priorities are to assure that the executive compensation programs
enable the company to attract, retain and motivate the high caliber executives
required for the success of the business. These objectives are achieved through
a variety of compensation programs, summarized below, which support both the
current and long-term performance of the business.
BASE SALARY
Base salaries for executive officers are determined by evaluating the
responsibilities of the position and comparing it with other executive positions
in the marketplace. From time to time the company's compensation consultant
surveys senior executive salaries from a representative sampling (approximately
20) of companies in the computer services and business forms industries. The
company's pay grade levels are then set at approximately the competitive
mid-range. Each of the executive officers is assigned a pay grade based on that
competitive marketplace data. Individual salaries may then vary somewhat below
or above the mid-range, based upon the individual's performance and contribution
to company success, tenure on the job and internal equity. Annual salary
adjustments are determined by individual performance within an officer salary
increase budget approved by the Committee. Base salary levels for executive
officers increased an average of 4% effective January 1, 1996. The provisions of
this paragraph apply to all executives except those whose employment agreements
may contain terms which vary from these provisions. See pages 17-19 of this
report.
ANNUAL INCENTIVES
At the Annual Meeting of Shareholders on February 15, 1996, a
significant majority of shareholders approved a separate performance-based,
incentive plan ("CEO Plan") for the company's Chief Executive Officer ("CEO"),
the terms of which are substantially similar to the annual and intermediate
compensation plans for the other officers. The purpose of this separate CEO Plan
was to qualify all CEO compensation in excess of $1 million for deductibility
under the applicable provisions of the Internal Revenue Code.
Officers have an opportunity to earn annual bonuses ("Annual Plan")
based on performance against financial targets established by the Committee.
Since 1987, the company has used corporate return on equity ("ROE") as its
primary measure of corporate performance. During fiscal 1996, the Committee
introduced growth in sales and growth in earnings as additional measures for
determining annual bonuses. ROE is weighted more heavily (75%) than the growth
components (25%) in determining annual bonuses. Also, the ROE performance level
which must be achieved before any bonus is paid was raised as was the maximum
bonus achievable. At the divisional level, other measures of performance for the
annual bonus include sales, operating income and return on net assets. In
addition, the Committee approves adjustments to the bonus formula as may be
necessary from time to time to insure against unmerited windfalls or penalties
due to accounting changes or other non-operating factors. Over time, the company
believes it has found that linking executive pay principally to corporate ROE
directly ties the
20
<PAGE> 21
executive's interests and rewards to those of the shareholder. Under the
structure of the Annual Plan in effect for fiscal 1996, no bonus is paid until a
threshold corporate ROE of 10% is achieved; maximum payout requires a
combination of a 28% ROE and a 15% growth factor in sales and earnings. The
annual bonus payout can range between 0% of annual salary to 90% of annual
salary. For fiscal 1996, because the company achieved a 26.6% ROE and healthy
growth of both sales and earnings (which varied by division), the annual bonus
payout for the executive officers (including Mr. Holmes under his substantially
similar but separate plan) averaged 77.4% of annual salary.
Another annual incentive plan is the personal performance bonus. This
plan is designed to reward all officers for the achievement of financial and
non-financial goals which are agreed upon by the officer and the officer's
superior. In the case of Mr. Holmes, his annual goals are agreed upon by this
Committee in consultation with Mr. Holmes. Examples of financial goals have
been ROE, sales, return on net assets and operating income. Examples of
non-financial goals have been market share growth, total quality measures,
customer satisfaction and the strengthening of a key organizational process.
With the exception of Mr. Holmes and the three division presidents, whose
personal performance bonuses are determined by the Compensation Committee
during its year-end review, all other executive officers have their personal
performance bonus determined by the respective individual to whom they report
during year-end evaluations. Depending on an individual's performance against
goals, this bonus can range between 0% to 20% of annual salary. For fiscal 1996
this personal performance bonus for the named executive officers ranged from
15% to 20% of annual salary.
LONG-TERM INCENTIVES
STOCK OPTIONS
To further align the interests of shareholders and management, the
company grants incentive stock options annually to approximately 300 officer and
director-level employees. The number of shares awarded is driven by a pay grade
level formula which is established and reviewed from time to time by the
Compensation Committee. The Committee assigns a percentage to each pay grade
level. That percentage is multiplied by the salary mid-point for that grade
level and the result is divided by the fair market value of the Company's stock
on October 1. For all officers during fiscal year 1996, the percentage of annual
salary used in determining stock option grants ranged from 40% to 125%. The
exercise price is the fair market value of the stock on the date of the grant.
The options, which have a ten year life, are not exercisable during the first
year after the grant. Thereafter, on each of the first four anniversaries of the
grant, twenty-five percent of the options become exercisable.
Such stock options provide incentive for the creation of shareholder
value, since the full benefit of the compensation package cannot be realized
unless an appreciation in the price of the company's common shares occurs over a
specified number of years.
STOCK OWNERSHIP GUIDELINES
(Share information reflects September, 1996, two-for-one stock split)
During fiscal year 1994, the Compensation Committee established
suggested stock ownership guidelines for all officers of the company. These
guidelines specify an appropriate level of ownership of company stock as a
multiple of the officer's annual base salary. These multiples range from a high
of 4.25 times annual salary (in the case of Mr. Holmes) to a low of 1.5 times
annual salary. The Committee thought it appropriate to permit the officers to
achieve these ownership guidelines over a ten year period in increments of 10%
per year. To encourage the officers to make steady progress toward meeting the
guidelines, the Committee determined that if an officer owns a quantity of
shares sufficient to meet the ownership guidelines for that year the officer
would be granted options on 20% more shares in addition to the officer's
standard stock option grant for that year. If, for example, the standard stock
option grant for that year were one hundred shares, the officer would receive
options on twenty additional shares of stock for having met the guidelines for
that year. As of September 1, 1996, stock ownership among the fifty officers
stood at approximately 1,710,300 shares representing a market value of
approximately $42.5 million. The Committee believes that these guidelines will
have the positive effect of further aligning the interests of the officer group
with those of all shareholders.
21
<PAGE> 22
INTERMEDIATE INCENTIVE COMPENSATION
Certain senior officers, including all named executive officers (except
Mr. Holmes), also participate in an Intermediate Incentive Compensation Plan.
This plan, which is paid annually, is based on a three-year average return on
equity, and is designed to focus and reward senior management on producing
consistent longer-term financial results. For fiscal 1996 the payout from the
CEO Plan (for Mr. Holmes) and from the Intermediate Incentive Compensation Plan
for the other named executive officers ranged from 70% to 100% of annual salary.
CEO COMPENSATION
(Share information reflects September, 1996, two-for-one stock split)
Mr. Holmes has served as Chairman, President and Chief Executive
Officer since August 1990, and President and Chief Executive Officer since
January 1989. The Performance Graph on page 19 illustrates the company's
accomplishments during much of this period. In fiscal 1996 the company achieved
record revenues and earnings and exceeded a 26% ROE. Shareholders realized a 52%
increase in share value during the year. Mr. Holmes' 1996 compensation of
$1,458,477 (as shown in the Summary Compensation Table on page 14) included a
market-priced base salary of $466,575. Under the CEO Plan he is eligible for
annual and intermediate incentive compensation the performance standards of
which are substantially similar to those in the annual and intermediate
compensation plans for other named executive officers. The Committee awarded a
personal performance bonus of $93,315 to Mr. Holmes following its year-end
evaluation. On October 2, 1995, the Committee awarded Mr. Holmes an annual stock
option grant for 39,600 Class A Shares which was based on the formula (explained
above) applicable to his position. In addition Mr. Holmes received a grant of
400,000 non-qualified stock options pursuant to the terms of his Employment
Agreement described on pages 17 through 19.
SUMMARY
The Committee believes that a high caliber, motivated management team
is critical to sustained business success.
As in prior years, in 1996 a significant portion (approximately 66%) of
the total compensation potential for the named executive officers was "at risk"
and payable based on individual and corporate performance-based variables that
will motivate and focus management on those issues that drive the success of the
company. The Committee intends to continue its performance-based pay policy
which links executive rewards to shareholder returns.
THE COMPENSATION COMMITTEE
Dr. David E. Fry
Allan Z. Loren
Gayle B. Price, Jr.
Martin D. Walker, Chairman
DIRECTOR COMPENSATION
Non-employee Directors receive an annual fee of $22,500 plus $1,000 for
each Board of Directors Meeting attended. In addition, on October 1 of each year
non-employee Directors receive options to purchase that number of Class A Shares
which represent a fair market value of $40,000. Non-employee Directors who serve
on a committee receive an additional $500 for each committee meeting attended.
Committee Chairmen receive an additional $1,500 per year. No Director who is an
employee of the company receives any compensation for services as a Director or
committee member.
22
<PAGE> 23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
VOTING SECURITIES OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
===================================================================================================================
CLASS A CLASS B TOTAL VOTING
SHARES % SHARES % SHARES %
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Number of shares outstanding on
November 1, 1996, except as noted 80,983,063(1) 100.0 20,000,000 100.0 100,983,063(1) 100.0
below were:
The following are the only persons
known by the Company to own
beneficially more than 5% of either
class of voting security on
November 1, 1996:
Richard H. Grant, III 119,047(2) .15 20,000,000 100.0 20,119,047(2) 20.0
- ---------------------
Director and Private Investor
800 Germantown Street
Dayton, Ohio 45407
American Express Financial Advisors
- -----------------------------------
IDS Tower 10 6,310,700(3) 7.8 6,310,700(3) 6.2
Minneapolis, Minnesota 55440
On November 1, 1996, the shares
beneficially owned by all executive
officers and Directors as a group
(14 persons) were: 2,449,605(4) 3.0 20,000,000 100.0 22,449,605(4) 22.2
===================================================================================================================
<FN>
(1) Does not include 11,380,329 Class A Shares held in treasury.
(2) Richard H. Grant, III has sole voting and sole investment power with
regard to 98,828 Class A Shares held in his own name. The total
includes 20,219 Class A Shares as to which Mr. Grant holds options
exercisable within 60 days. The amount excludes 12,776 Class A Shares
held by Mrs. Grant as to which Mr. Grant disclaims beneficial
ownership. This amount does not include 1,000,000 Class A Shares into
which his 20,000,000 Class B Shares are convertible at a 20-to-1 ratio.
(3) As of November 1, 1996, American Express Financial Advisors and its
affiliates share dispositive power, and American Express Financial
Advisors and an affiliate share voting power, for the 6,310,700 shares.
(4) Includes 245,323 Class A Shares as to which such persons may exercise
options within the next 60 days.
</TABLE>
23
<PAGE> 24
The shares beneficially owned on November 1, 1996 by each Director
and Nominee for Director other than for Richard H. Grant, III who is shown
above were:
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES VOTING AND INVESTMENT POWER(1)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Joseph N. Bausman 144,856 Mr. Bausman has sole voting and sole investment power with regard to
112,996 Class A Shares held in his own name. The total includes
31,860 Class A Shares as to which Mr. Bausman holds options
exercisable within 60 days.
Dr. David E. Fry 1,379 Dr. Fry has sole voting and sole investment power with regard to 800
Class A Shares held in his own name. The total includes 579 Class A
Shares as to which Dr. Fry holds options exercisable within 60 days.
Richard H. Grant, Jr. 1,016,238 Richard H. Grant, Jr. has sole voting and sole investment power with
regard to 1,986 Class A Shares held in his own name. He also has sole
voting and sole investment power with regard to 1,014,252 Class A Shares
held in a trust for his benefit. This amount excludes 42,532 Class A
Shares held by Mrs. Grant as to which Mr. Grant disclaims beneficial
ownership.
David R. Holmes 578,824 Mr. Holmes has sole voting and sole investment power with regard to
507,551 Class A Shares. The total includes 12,367 Class A Shares, 9,803
Class A Shares and 9,803 Class A Shares held in the names of his three
sons and 39,300 Class A Shares as to which Mr. Holmes holds options
exercisable within 60 days. This amount excludes 10,211 Class A Shares
held by Mrs. Holmes as to which Mr. Holmes disclaims beneficial
ownership.
Cleve L. Killingsworth, Jr. 0 -----
Allan Z. Loren 0 -----
Dale L. Medford 149,346 Mr. Medford has sole voting and sole investment power with regard to
89,906 shares held in his own name, and shared voting and shared
investment power with regard to 10,400 shares held jointly with his
spouse. The total includes 49,040 Class A Shares as to which Mr. Medford
holds options exercisable within 60 days.
Robert C. Nevin 175,208 Mr. Nevin has sole voting and sole investment power with regard to
121,628 Class A Shares held in his own name, 5,800 Class A Shares in the
name of his daughter, and 5,800 Class A Shares held in the name of his
son. The total includes 41,980 Class A Shares as to which Mr. Nevin holds
options exercisable within 60 days.
Gayle B. Price, Jr. 10,179 Mr. Price has sole voting and sole investment power with regard to 9,600
Class A Shares held in his own name. The total includes 579 Class A
Shares as to which Mr. Price holds options exercisable within 60 days.
(Table continued on following page)
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C> <C>
Kenneth W. Thiele 8,579 Mr. Thiele has sole voting and sole investment power with regard to 8,000
Class A Shares held in his own name. The total includes 579 Class A
Shares as to which Mr. Thiele holds options exercisable within 60 days.
Martin D. Walker 8,579 Mr. Walker has sole voting and sole investment power with regard to 8,000
Class A Shares held in his own name. The total included 579 Class A
Shares as to which Mr. Walker holds options exercisable within 60 days.
<FN>
(1) All shares are held with sole voting and sole investment power unless
otherwise indicated. The individual holdings of each Director equal
less than 1% of the issued and outstanding Class A or Class B Shares,
except for Richard H. Grant, Jr. and Richard H. Grant, III.
Richard H. Grant, III is the son of Richard H. Grant, Jr., and they may
be deemed to be "control persons" with respect to the company; however,
each disclaims any beneficial ownership of the Class A Shares or Class
B Shares held by the other.
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No Executive Officer or Director is or has been indebted to the company
during the last fiscal year in excess of $60,000.
PART IV
(Dollars in thousands)
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
The following consolidated financial statements of the company are set
forth on pages 33 through 54.
Statements of Consolidated Income - For The Years Ended
September 30, 1996, 1995 and 1994
Consolidated Balance Sheets - September 30, 1996 and 1995
Statements of Consolidated Shareholders' Equity - For The Years Ended
September 30, 1996, 1995 and 1994
Statements of Consolidated Cash Flows - For The Years Ended
September 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements (Including Supplementary
Data)
(a)(2) FINANCIAL STATEMENT SCHEDULES FOR EACH OF THE THREE YEARS IN THE PERIOD
ENDED SEPTEMBER 30, 1996 ARE ATTACHED HERETO:
Schedule II - Valuation Accounts Page 55
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore, have
been omitted.
25
<PAGE> 26
(b) REPORTS ON FORM 8-K
On June 3, 1996, the company filed a Report on Form 8-K under Item 2 which
set forth the completion of the tender offer for all outstanding shares of the
common stock of Duplex Products Inc. On August 2, 1996, the company filed a
Current Report Amendment on Form 8-K under Item 7(b) which set forth the
combined pro forma financial information required of the company and Duplex
Products Inc.
(c) EXHIBITS
The exhibits as shown in "Index of Exhibits" (pages 56-63) are filed as a
part of this Report.
(d) CONSOLIDATED FINANCIAL STATEMENTS
Individual financial statements and schedules of the company's
consolidated subsidiaries are omitted from this Annual Report on Form 10-K
because consolidated financial statements and schedules are submitted and
because the registrant is primarily an operating company and all subsidiaries
included in the consolidated financial statements are wholly owned.
--------------------------------------------------------------
The Company will provide a copy of its 1996 Annual Report to
Shareholders upon written request to:
ADAM M. LUTYNSKI, GENERAL COUNSEL & SECRETARY
THE REYNOLDS AND REYNOLDS COMPANY
P. O. BOX 2608
DAYTON, OHIO 45401
--------------------------------------------------------------
26
<PAGE> 27
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
<TABLE>
<S> <C>
THE REYNOLDS AND REYNOLDS COMPANY
By /S/ ADAM M. LUTYNSKI
------------------------------------------------------------
ADAM M. LUTYNSKI
General Counsel and Secretary
</TABLE>
Date: November 19, 1996
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
Date: November 19, 1996 By /S/ DAVID R. HOLMES
------------------------------------------------------------
DAVID R. HOLMES
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
Date: November 19, 1996 By /S/ DALE L. MEDFORD
------------------------------------------------------------
DALE L. MEDFORD
Vice President, Corporate Finance and Chief
Financial Officer (Principal Financial and
Accounting Officer) and Director
Date: November 19, 1996 By /S/ JOSEPH N. BAUSMAN
------------------------------------------------------------
JOSEPH N. BAUSMAN
President, Automotive Systems Division
and Director
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C>
Date: November 19, 1996 By /S/ DR. DAVID E. FRY
------------------------------------------------------------
DR. DAVID E. FRY, Director
Date: November 19, 1996 By /S/ RICHARD H. GRANT, JR.
------------------------------------------------------------
RICHARD H. GRANT, JR.
Chairman of the Steering
Committee and Director
Date: November 19, 1996 By /S/ RICHARD H. GRANT, III
------------------------------------------------------------
RICHARD H. GRANT, III, Director
Date: November 19, 1996 By /S/ ALLAN Z. LOREN
------------------------------------------------------------
ALLAN Z. LOREN, Director
Date: November 19, 1996 By /S/ ROBERT C. NEVIN
------------------------------------------------------------
ROBERT C. NEVIN
President, Business Systems Division
and Director
Date: November 19, 1996 By /S/ GAYLE B. PRICE, JR.
------------------------------------------------------------
GAYLE B. PRICE, JR., Director
Date: November 19, 1996 By /S/ KENNETH W. THIELE
------------------------------------------------------------
KENNETH W. THIELE, Director
Date: November 19, 1996 By /S/ MARTIN D. WALKER
------------------------------------------------------------
MARTIN D. WALKER, Director
</TABLE>
28
<PAGE> 29
ANNUAL REPORT ON FORM 10-K
ITEM 14(a)(1) and (2); 14(c) and (d)
Financial Statements, Schedules and Exhibits
Year Ended September 30, 1996
The Reynolds and Reynolds Company
Dayton, Ohio
29
<PAGE> 30
MANAGEMENT'S STATEMENT OF RESPONSIBILITY
November 11, 1996
To Our Shareholders:
The management of The Reynolds and Reynolds Company is responsible for
accurately and objectively preparing the company's consolidated financial
statements. These statements are prepared in accordance with generally accepted
accounting principles and include amounts based on management's best estimates
and judgments. Management believes that the financial information in this annual
report is free from material misstatement.
The company's management maintains an environment of multilevel controls. The
Company Business Principles, for example, is distributed to all employees and
communicates high standards of integrity that are expected in the company's
day-to-day business activities. The Company Business Principles addresses a
broad range of issues including potential conflicts of interest, business
relationships, accurate and timely reporting of financial information,
confidentiality of proprietary information, insider trading and social
responsibility.
The company also maintains and monitors a system of internal controls designed
to provide reasonable assurances regarding the safeguarding of company assets
and the integrity and reliability of financial records. These internal controls
include the appropriate segregation of duties and the application of formal
policies and procedures. Furthermore, an internal audit department, which has
access to all financial and other corporate records, regularly performs tests to
evaluate the system of internal controls to ensure the system is adequate and
operating effectively. At the date of these financial statements, management
believes the company has an effective internal control system.
The company's independent public auditors, Deloitte & Touche LLP, perform an
independent audit of the company's consolidated financial statements. They have
access to minutes of board meetings, all financial information and other
corporate records. Their audit is conducted in accordance with generally
accepted auditing standards and includes consideration of the system of internal
controls. Their report is included in this annual report on page 31.
Another level of control resides with the audit committee of the company's board
of directors. The committee, comprised of four directors who are not members of
management, oversees the company's financial reporting process. They recommend
to the board, subject to shareholder approval, the selection of the company's
independent public auditors. They discuss the overall audit scope and the
specific audit plans with the independent public auditors and the internal
auditors. This committee also meets regularly (separately and jointly) with the
independent public auditors, the internal auditors and management to discuss the
results of those audits, the evaluation of internal controls, the quality of
financial reporting and specific accounting and reporting issues.
David R. Holmes Dale L. Medford
Chairman, President and Vice President, Corporate Finance
Chief Executive Officer and Chief Financial Officer
30
<PAGE> 31
INDEPENDENT AUDITORS' REPORT
The Shareholders of The Reynolds and Reynolds Company:
We have audited the accompanying consolidated balance sheets of The Reynolds and
Reynolds Company and its subsidiaries as of September 30, 1996 and 1995, and the
related statements of consolidated income, shareholders' equity and cash flows
for each of the three years in the period ended September 30, 1996. Our audits
also included the financial statement schedules included at Item 14(a) (2).
These financial statements and financial statement schedules are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of The Reynolds and Reynolds Company
and its subsidiaries at September 30, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
- --------------------------
Dayton, Ohio
November 11, 1996
(November 19, 1996 as to Note 13)
31
<PAGE> 32
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement No.
33-56045 of The Reynolds and Reynolds Company on Form S-8, Post-Effective
Amendments No. 1 and No. 2 to Registration Statement No. 33-48546 of The
Reynolds and Reynolds Company on Form S-3, Post-Effective Amendment No. 1 to
Registration Statement No. 33-51895 of The Reynolds and Reynolds Company on
Form S-3, Pre-Effective Amendment No. 1 to Registration Statement No. 33-58877
of The Reynolds and Reynolds Company on Form S-3, Pre-Effective Amendment No. 1
to Registration Statement No. 33-61725 of The Reynolds and Reynolds Company on
Form S-3, Registration Statement No. 33-59615 of The Reynolds and Reynolds
Company on Form S-3 and Registration Statement No. 33-59617 of The Reynolds and
Reynolds Company on Form S-3 of our report dated November 11, 1996 (November
19, 1996 as to Note 13), appearing in this Annual Report on Form 10-K of
The Reynolds and Reynolds Company for the year ended September 30, 1996, and to
the reference to us under the heading "Experts" in the Prospectus, which is
part of Registration Statement No. 333-12967 of The Reynolds and Reynolds
Company on Form S-3, and Registration Statement No. 333-19681 of The Reynolds
and Reynolds Company on Form S-8.
/s/ DELOITTE & TOUCHE LLP
- --------------------------
Dayton, Ohio
November 19, 1996
32
<PAGE> 33
STATEMENTS OF CONSOLIDATED INCOME
(In thousands except per share data)
<TABLE>
<CAPTION>
For The Years Ended September 30 1996 1995 1994
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales and Revenues
Information systems
Products $ 756,664 $ 621,909 $ 564,976
Services 317,516 266,671 224,330
----------- --------- ---------
Total information systems 1,074,180 888,580 789,306
Financial services 26,263 22,311 19,488
----------- --------- ---------
Total net sales and revenues 1,100,443 910,891 808,794
----------- --------- ---------
Costs and Expenses
Cost of sales
Products 438,041 363,303 333,630
Services 125,614 107,342 96,284
----------- --------- ---------
Total cost of sales 563,655 470,645 429,914
Selling, general and administrative expenses 360,145 294,081 261,997
Restructuring charge 12,400
Financial services 11,818 9,150 6,416
----------- --------- ---------
Total costs and expenses 935,618 773,876 710,727
----------- --------- ---------
Operating Income 164,825 137,015 98,067
----------- --------- ---------
Other Charges (Income)
Interest expense 5,778 3,779 3,820
Interest income (1,648) (1,674) (1,449)
Other (1,548) (1,845) (1,626)
----------- --------- ---------
Total other charges 2,582 260 745
----------- --------- ---------
Income Before Income Taxes 162,243 136,755 97,322
Provision for Income Taxes 68,505 58,161 31,118
----------- --------- ---------
Net Income $ 93,738 $ 78,594 $ 66,204
=========== ========= =========
Earnings Per Common Share $ 1.10 $ .92 $ .76
=========== ========= =========
Average Number of Common Shares Outstanding 85,228 85,032 87,563
=========== ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
33
<PAGE> 34
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
September 30 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
INFORMATION SYSTEMS ASSETS
Current Assets
Cash and equivalents $ 11,130 $ 18,366
-------- --------
Accounts receivable (less allowance for doubtful accounts:
1996--$5,744;1995--$3,166) 161,278 114,617
-------- --------
Inventories
Finished products 42,953 33,064
Work in process 3,788 1,541
Raw materials and supplies 6,461 3,191
-------- --------
Total inventories 53,202 37,796
-------- --------
Deferred income taxes 22,398 10,912
-------- --------
Prepaid expenses and other assets 23,075 6,500
-------- --------
Total current assets 271,083 188,191
-------- --------
Property, Plant and Equipment
Land and improvements 9,521 8,237
Buildings and improvements 84,716 70,678
Machinery and equipment 203,875 168,761
Furniture and other 32,607 28,216
Construction in progress 10,535 6,154
-------- --------
Total property, plant and equipment 341,254 282,046
Less accumulated depreciation 173,587 153,584
-------- --------
Net property, plant and equipment 167,667 128,462
-------- --------
Intangible Assets
Goodwill 94,969 101,275
Software licensed to customers 15,435 15,063
Other 10,349 13,551
-------- --------
Total intangible assets 120,753 129,889
-------- --------
Other Assets 50,859 42,959
-------- --------
Total Information Systems Assets 610,362 489,501
-------- --------
FINANCIAL SERVICES ASSETS
Finance Receivables 311,576 264,901
Cash and Other Assets 1,706 1,064
-------- --------
Total Financial Services Assets 313,282 265,965
-------- --------
TOTAL ASSETS $923,644 $755,466
======== ========
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
INFORMATION SYSTEMS LIABILITIES
Current Liabilities
Current portion of long-term debt $ 6,832 $ 714
Notes payable 7,659 9,492
Accounts payable
Trade 45,208 32,636
Other 5,331 6,715
Accrued liabilities
Compensation and related items 43,847 26,838
Income taxes 2,451 8,886
Other 49,033 34,301
Deferred revenues 6,917 6,251
-------- --------
Total current liabilities 167,278 125,833
-------- --------
Long-Term Debt 84,601 41,443
-------- --------
Other Liabilities
Postretirement medical 38,104 35,462
Pensions 23,795 18,285
Other 1,317 1,406
-------- --------
Total other liabilities 63,216 55,153
-------- --------
Total Information Systems Liabilities 315,095 222,429
-------- --------
FINANCIAL SERVICES LIABILITIES
Notes Payable 161,911 131,675
Deferred Income Taxes 71,181 67,159
Other Liabilities 2,462 1,648
-------- --------
Total Financial Services Liabilities 235,554 200,482
-------- --------
SHAREHOLDERS' EQUITY
Capital Stock
Preferred
Class A common 50,601 25,628
Class B common 625 313
Additional Paid-In Capital 15,815
Other Adjustments (6,203) (3,581)
Retained Earnings 327,972 294,380
-------- --------
Total Shareholders' Equity 372,995 332,555
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $923,644 $755,466
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
34
<PAGE> 35
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In thousands except per share data)
<TABLE>
<CAPTION>
For The Years Ended September 30 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capital Stock
Class A common
Balance, beginning of year $ 25,628 $ 26,067 $ 13,199
Stock splits 25,629 13,199
Capital stock issued 379 420 670
Converted from Class B common 63
Capital stock repurchased (1,000) (848) (1,035)
Capital stock retired (35) (11) (29)
--------- --------- ---------
Balance, end of year 50,601 25,628 26,067
--------- --------- ---------
Class B common
Balance, beginning of year 313 313 188
Stock splits 312 188
Converted to Class A common (63)
--------- --------- ---------
Balance, end of year 625 313 313
--------- --------- ---------
Additional Paid-In Capital
Balance, beginning of year 15,815 2,557 2,693
Stock splits (18,712) (13,387)
Capital stock issued 3,314 12,507 15,315
Capital stock repurchased (2,177)
Capital stock retired (1,117) (451) (999)
Tax benefits from stock options 700 1,202 1,112
--------- --------- ---------
Balance, end of year 0 15,815 2,557
--------- --------- ---------
Other Adjustments
Balance, beginning of year (3,581) (2,566) (3,316)
Foreign currency translation (269) 28 (328)
Minimum pension liability (2,353) (1,043) 1,078
--------- --------- ---------
Balance, end of year (6,203) (3,581) (2,566)
--------- --------- ---------
Retained Earnings
Balance, beginning of year 294,380 266,668 250,561
Stock split (7,229)
Net income 93,738 78,594 66,204
Cash dividends
Class A common (1996--$.25 PER SHARE;
1995--$.20 per share; 1994--$.165 per share) (20,344) (16,451) (14,036)
Class B common (1996--$.0125 PER SHARE;
1995--$.01 per share; 1994--$.00825 per share) (250) (200) (190)
Capital stock repurchased (32,323) (34,231) (35,871)
--------- --------- ---------
Balance, end of year 327,972 294,380 266,668
--------- --------- ---------
Total Shareholders' Equity $ 372,995 $ 332,555 $ 293,039
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
35
<PAGE> 36
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For The Years Ended September 30 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INFORMATION SYSTEMS
Cash Flows Provided by Operating Activities $ 110,345 $ 107,222 $ 94,956
--------- --------- --------
Cash Flows Provided by (Used for) Investing Activities
Business combinations (78,039) (20,824) (9,814)
Capital expenditures (39,980) (30,750) (27,888)
Net proceeds from sales of assets 10,943 3,744 8,312
Proceeds from sale of receivables 6,000
Capitalization of software licensed to customers (4,103) (3,471) (2,695)
(Advances to) repayments from financial services 4,189 (9,708) 336
--------- --------- --------
Net cash used for investing activities (106,990) (55,009) (31,749)
--------- --------- --------
Cash Flows Provided by (Used for) Financing Activities
Additional borrowings 50,000 1,254 1,250
Principal payments on debt (8,159) (5,051) (2,266)
Cash dividends paid (20,594) (16,651) (14,226)
Capital stock issued 1,754 1,422 1,882
Capital stock repurchased (33,323) (35,079) (39,083)
--------- --------- --------
Net cash used for financing activities (10,322) (54,105) (52,443)
--------- --------- --------
Effect of Exchange Rate Changes on Cash (269) 28 29
--------- --------- --------
Increase (Decrease) in Cash and Equivalents (7,236) (1,864) 10,793
Cash and Equivalents, Beginning of Year 18,366 20,230 9,437
--------- --------- --------
Cash and Equivalents, End of Year $ 11,130 $ 18,366 $ 20,230
========= ========= ========
FINANCIAL SERVICES
Cash Flows Provided by Operating Activities $ 15,449 $ 13,854 $ 10,767
--------- --------- --------
Cash Flows Provided by (Used for) Investing Activities
Finance receivables originated (117,040) (115,643) (81,940)
Collections on finance receivables 76,174 64,232 55,038
--------- --------- --------
Net cash used for investing activities (40,866) (51,411) (26,902)
--------- --------- --------
Cash Flows Provided by (Used for) Financing Activities
Additional borrowings 72,988 70,000 41,650
Principal payments on debt (42,752) (42,688) (24,975)
Advances from (repayments to) information systems (4,189) 9,708 (336)
--------- --------- --------
Net cash provided by financing activities 26,047 37,020 16,339
--------- --------- --------
Increase (Decrease) in Cash and Equivalents 630 (537) 204
Cash and Equivalents, Beginning of Year 663 1,200 996
--------- --------- --------
Cash and Equivalents, End of Year $ 1,293 $ 663 $ 1,200
========= ========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
36
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of the parent company
and its domestic and foreign subsidiaries and present details of revenues,
expenses, assets, liabilities and cash flows for both information systems and
financial services. Information systems is comprised of the company's computer
systems and business forms operations. Financial services is comprised of Reyna
Financial Corporation, the company's wholly-owned financial services subsidiary
and a similar operation in Canada. In accordance with industry practice, the
assets and liabilities of information systems are classified as current or
non-current and those of financial services are unclassified. Intercompany
balances and transactions between the consolidated companies are eliminated.
USE OF ESTIMATES
The consolidated financial statements are prepared in conformity with generally
accepted accounting principles and include amounts based on management's best
estimates and judgments. The use of estimates and judgments may affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the period. Actual results could differ
from those estimates.
CASH AND EQUIVALENTS
For purposes of reporting cash flows, cash and equivalents includes cash on
hand, cash deposits and investments with maturities of three months or less at
the time of purchase.
TRANSFER OF RECEIVABLES
The company has entered into an agreement to transfer a percentage interest in a
pool of accounts receivable. The transferee's recourse is limited to certain
circumstances. Under terms of the agreement, which is accounted for as a sale of
receivables, the transferee advances the company funds equal to the face value
of the receivables transferred. Monthly, the company pays the transferee a
discount, based on market interest rates, on the uncollected receivable
balances. The company may transfer up to $10,000 of receivables under this
agreement, which expires September 30, 1998. The balance of receivables
transferred was $6,000 at September 30, 1996 and 1995. The transferee also has a
collateral interest in $1,500 of other receivables at September 30, 1996.
CONCENTRATIONS OF CREDIT RISK
The company is a leading provider of information management systems to
automobile dealerships. A significant portion of finance receivables and
accounts receivable are from automobile dealerships.
ALLOWANCE FOR LOSSES
An allowance for losses on finance receivables is established based on
historical loss experience, portfolio profile, industry averages and current
economic conditions. Finance receivables are charged to the allowance for losses
when an account is deemed to be uncollectible, taking into consideration the
financial condition of the customer and the value of the collateral. Recoveries
of finance receivables, previously charged off as uncollectible, are credited to
the allowance for losses.
37
<PAGE> 38
INVENTORIES
Inventories are stated at the lower of cost or market. Costs of domestic
business forms inventories are determined by the last-in, first-out (LIFO)
method. At September 30, 1996 and 1995, LIFO inventories were $45,253 and
$27,928, respectively. These inventories determined by the first-in, first-out
(FIFO) method would increase by $6,232 in 1996, $7,096 in 1995 and $4,256 in
1994. For other inventories, cost is determined by specific identification or
the FIFO method. Market is based on net realizable value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation and amortization
are provided over the estimated useful service lives of the assets or asset
groups, principally on the straight-line method for financial reporting
purposes. Estimated asset lives are:
<TABLE>
<CAPTION>
Years
- --------------------------------------------------------------------------------
<S> <C>
Land improvements 10
Buildings and improvements 3--33
Machinery and equipment 3--18
Furniture and other 3--15
</TABLE>
INTANGIBLE ASSETS
The excess of cost over net assets of companies acquired is recorded as goodwill
and amortized on a straight-line basis typically over five to forty years.
Amortization expense was $10,541 in 1996, $8,530 in 1995 and $5,707 in 1994. At
September 30, 1996 and 1995, the accumulated amortization was $36,183 and
$25,644, respectively.
The company capitalizes certain costs of developing its software products. Upon
completion of a software product, amortization is determined based on the larger
of the amounts computed using (a) the ratio that current gross revenues for each
product bears to the total of current and anticipated future gross revenues for
that product or (b) the straight-line method over the remaining estimated
economic life of the product, ranging from five to seven years. Amortization
expense for software licensed to customers was $3,731 in 1996, $3,746 in 1995
and $4,059 in 1994. At September 30, 1996 and 1995, the accumulated amortization
was $43,052 and $39,347, respectively.
Other intangible assets are amortized over periods ranging from three to fifteen
years. Amortization expense was $2,408 in 1996, $2,165 in 1995 and $1,688 in
1994. At September 30, 1996 and 1995, the accumulated amortization was $10,398
and $8,099, respectively.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement requires that long-lived assets and certain intangibles be reviewed
for impairment whenever events or circumstances indicate that the carrying
amount of an asset may not be recoverable. This statement also requires that
long-lived assets and certain intangible assets to be disposed of be reported at
the lower of their carrying amount or fair value less costs to sell. The
adoption of this statement had no material effect on the financial statements
of the company.
REVENUE RECOGNITION - INFORMATION SYSTEMS
Information systems revenues consist of both product sales and service revenues.
Product sales, including computer hardware, software licenses and business
forms, are generally recorded upon shipment to customers. In certain instances,
computer systems sales are not recognized until installation is completed. Under
certain forms management contractual arrangements, custom forms are stored for
future delivery to customers, and are recognized as revenue when title passes
and the customer has been invoiced. Service revenues, which include computer
hardware maintenance, software support, training and forms management services,
are recorded ratably over the contract period or as services are performed.
Forms management services represent fees for inventory management
38
<PAGE> 39
and warehousing services. Forms management services may be included in product
sales or separately billed to customers.
REVENUE RECOGNITION - FINANCIAL SERVICES
Financial services revenues consist primarily of interest earned on financing
the company's computer systems product sales. Revenues are recognized over the
lives of financing contracts, generally four to eight years, using the interest
method.
LEASE OBLIGATIONS
The company leases premises and equipment under various operating lease
agreements. As of September 30, 1996, future minimum lease payments relating to
these agreements were $20,916 in 1997, $15,214 in 1998, $9,367 in 1999, $6,439
in 2000 and $4,704 in 2001. Rental expenses were $25,660 in 1996, $19,408 in
1995 and $19,577 in 1994.
RESEARCH AND DEVELOPMENT COSTS
The company expenses research and development costs as incurred. These costs
were $24,439 in 1996, $20,978 in 1995 and $18,115 in 1994.
INCOME TAXES
The parent company and its domestic subsidiaries file a consolidated U.S.
federal income tax return. Deferred income taxes are provided for temporary
differences between the tax basis of an asset or liability and its reported
amount in the financial statements. Temporary differences result principally
from financial services product financing activities, postretirement benefits
and different depreciation methods. No deferred income tax liabilities are
recorded on undistributed earnings of the foreign subsidiary because, for the
most part, those earnings are permanently reinvested. Undistributed earnings of
the foreign subsidiary at September 30, 1996 were $16,722. The calculation of
the unrecognized deferred income tax liability on these earnings is not
practicable.
EARNINGS PER COMMON SHARE
Earnings per common share are computed by dividing net income by the weighted
average number of Class A common shares and Class A common share equivalents
outstanding during each year. Class A common share equivalents consist of those
shares which would be outstanding, assuming all Class B common shares were
converted into Class A common shares and assuming all dilutive stock options
were exercised and the proceeds used to repurchase Class A common shares at the
average market price. The dilutive effect of stock options is not material.
BUSINESS FORMS RESTRUCTURING
In 1994, the company recorded a restructuring charge of $12,400 for costs to be
incurred in the disposal of part of its computer paper product line and the
consolidation of certain custom business forms printing operations. This
transaction generated $11,500 of income tax benefits which more than offset the
negative after-tax effect of the restructuring charge. During 1995 this
restructuring was completed and the costs incurred approximated those originally
accrued.
2. 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 $89,800.
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 $275,000
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.
39
<PAGE> 40
The company recorded liabilities for the costs to exit duplicate manufacturing,
distribution and administrative facilities of Duplex. These liabilities included
the costs of closing seven Duplex manufacturing plants, five distribution
facilities and an administrative building. At September 30, 1996 the company had
closed three of the manufacturing plants, one distribution facility and the
administrative building. The company plans to exit the remaining facilities
during fiscal year 1997. As of May 20, 1996 key elements of the costs accrued
for exiting duplicate facilities were involuntary termination benefits of
$8,620, relocation costs of $1,346 and lease costs of $1,760. Involuntary
termination benefits represent severance payments and outplacement services for
550 employees, comprised principally of manufacturing employees. Through
September 30, 1996, 255 employees were terminated and $2,086 of involuntary
termination benefits, $302 of relocation costs and $46 of lease costs were paid.
The company recorded the assets of the duplicate Duplex facilities as current
assets held for sale. At May 20, 1996, these assets of $14,397 were recorded at
their fair market value less costs to dispose. At September 30, 1996, $4,305 of
these assets had been sold.
The company also purchased fifteen other businesses in the automotive,
healthcare and general business forms markets during the last three years. The
other businesses purchased in 1996 had annual sales of about $50,000. Businesses
acquired in 1995 and 1994 had annual sales of $56,000 and $32,000, respectively.
The businesses were purchased with a combination of cash, notes payable and
stock as reported in the table below. The issuances of notes payable and capital
stock were considered non-cash transactions for accounting purposes and were not
included in the statements of cash flows. These business combinations were
accounted for as purchases and the accounts of the acquired businesses were
included in the company's financial statements since the dates of acquisition.
In connection with these business combinations, the company recorded goodwill of
$859 in 1996, $31,367 in 1995 and $18,979 in 1994. This goodwill is being
amortized on a straight-line basis over five to fifteen years. No goodwill was
recorded for the Duplex transaction. Under the terms of some of the purchase
agreements, the company may be required to make additional payments, contingent
on the sales and profitability of the business purchased. These payments, if
made, will either be expensed in the period incurred or charged to goodwill. The
amount of contingent payments charged to goodwill was $4,270 in 1996 and $1,351
in 1995. Contingent payments may be made through 2006.
COMPONENTS OF PURCHASE PRICES
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash (net of cash and equivalents acquired) $78,039 $20,824 $ 9,814
Notes payable 9,492
Capital stock issued (1996 -- 31,472 SHARES;
1995 -- 827,576 shares; 1994 -- 1,225,384 shares) 796 11,383 13,075
------- ------- -------
Totals $78,835 $41,699 $22,889
======= ======= =======
</TABLE>
PRO FORMA INFORMATION (UNAUDITED)
On a pro forma basis, assuming that the 1996 business combinations were made as
of October 1, 1994, the consolidated revenues of the company would have
increased by about $174,000 in 1996 and $337,000 in 1995. Net earnings would
have decreased by $2,600 or $.03 per share in 1996 and $4,000 or $.04 per share
in 1995. These pro forma results of operations include pre-acquisition results
of the businesses acquired and 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.
40
<PAGE> 41
3. INCOME TAXES
<TABLE>
<CAPTION>
PROVISION FOR INCOME TAXES
1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 50,598 $ 36,800 $ 20,340
State and local 11,112 9,221 4,121
Foreign 902 (276) (380)
Deferred
Financial services product financing activities 4,022 15,557 9,538
Depreciation 690 2,774 (5,778)
Capital losses 1,696 2,814 (3,900)
Capital losses valuation allowance (1,122) (1,800) 2,198
Other 607 (6,929) 4,979
-------- -------- --------
Provision for income taxes $ 68,505 $ 58,161 $ 31,118
======== ======== ========
Income taxes paid (net of refunds) $ 79,616 $ 39,821 $ 24,017
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
RECONCILIATION OF INCOME TAX RATES
1996 1995 1994
AMOUNT PERCENT Amount Percent Amount Percent
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income taxes $ 56,785 35.0% $47,864 35.0% $ 34,062 35.0%
State and local taxes less federal
income tax effect 8,996 5.5 7,573 5.5 5,631 5.8
Divestiture of computer paper
business (11,500) (11.8)
Goodwill amortization
and write-off 2,636 1.6 2,228 1.6 3,207 3.3
Other 88 .1 496 .4 (282) (.3)
-------- ---- ------- ---- -------- ----
Provision for income taxes $ 68,505 42.2% $58,161 42.5% $ 31,118 32.0%
======== ==== ======= ==== ======== ====
</TABLE>
<TABLE>
<CAPTION>
INFORMATION SYSTEMS DEFERRED INCOME TAX ASSETS (LIABILITIES)
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Postretirement medical $ 15,419 $ 14,371
Pensions 9,005 5,496
Acquired net operating losses 6,668
Costs to exit duplicate facilities 3,743
Capital losses 157 1,853
Other 24,165 14,327
Depreciation (17,700) (11,341)
Capital losses valuation allowance (43) (1,165)
Other (17,009) (10,360)
-------- --------
Totals 24,405 13,181
Current 22,398 10,912
-------- --------
Non-current $ 2,007 $ 2,269
======== ========
</TABLE>
The carryforward of net operating losses expires primarily in 2009.
41
<PAGE> 42
4. FINANCIAL SERVICES
<TABLE>
<CAPTION>
INCOME STATEMENTS
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $26,263 $ 22,311 $ 19,488
------- -------- --------
Expenses
Interest expense 9,072 7,191 5,044
Allowance for losses provision (benefit) 500 (150) (700)
General and administrative 2,246 2,109 2,072
------- -------- --------
Total expenses 11,818 9,150 6,416
------- -------- --------
Income before income taxes 14,445 13,161 13,072
Provision for income taxes 5,708 5,192 5,199
------- -------- --------
Net income $ 8,737 $ 7,969 $ 7,873
======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
FINANCE RECEIVABLES
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Product financing receivables $ 356,387 $ 306,470
Unguaranteed residual values 22,143 16,495
Allowance for losses (3,314) (3,903)
Unearned interest income (65,933) (56,054)
Other 2,293 1,893
--------- ---------
Totals $ 311,576 $ 264,901
========= =========
</TABLE>
As of September 30, 1996, product financing receivables due for each of the next
five years were $110,598 in 1997, $93,464 in 1998, $76,829 in 1999, $51,997 in
2000 and $22,033 in 2001.
<TABLE>
<CAPTION>
ALLOWANCE FOR LOSSES
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance, beginning of year $ 3,903 $ 4,854
Provision (benefit) 500 (150)
Net losses (1,089) (801)
------- -------
Balance, end of year $ 3,314 $ 3,903
======= =======
</TABLE>
42
<PAGE> 43
5. FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
INFORMATION SYSTEMS
1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
Short-term notes, weighted average interest rates
of 6.0% at September 30, 1996 and 7.3% at September 30, 1995 $ 7,659 $ 9,492
======= =======
Fixed rate notes, weighted average interest rates
of 6.6% at September 30, 1996 and 6.5% at September 30, 1995,
maturing through 2003 $41,433 $42,157
Variable rate notes, weighted average interest rate
of 6.1% at September 30, 1996, maturing through 2002 50,000
------- -------
Totals 91,433 42,157
Current portion 6,832 714
------- -------
Long-term portion $84,601 $41,443
======= =======
</TABLE>
Loan agreements limit consolidated indebtedness and require a minimum current
ratio of 1.50. Loan agreements also limit dividend payments to $39,000 as of
September 30, 1996. As of September 30, 1996, the fair values of information
systems financing arrangements were $7,659 for short-term notes, $39,954 for
fixed rate notes and $50,000 for variable rate notes. At September 30, 1995, the
fair values of information systems financing arrangements were $9,525 for
short-term notes and $41,148 for fixed rate notes. At September 30, 1996, debt
maturities were $6,832 in 1997, $8,531 in 1998, $19,048 in 1999, $21,298 in 2000
and $21,548 in 2001. Interest paid was $5,882 in 1996, $3,006 in 1995 and $3,153
in 1994.
FINANCIAL SERVICES
In the ordinary course of business, the company borrows cash to fund investments
in finance receivables from the sale of the company's products. The company
attempts to limit its interest rate exposure between the interest earned on
fixed rate finance receivables and the interest paid on variable rate financing
agreements through the use of interest rate management agreements. Interest rate
swaps provide for interest to be received on notional amounts at variable rates
and provide for interest to be paid on the same notional amounts at fixed rates.
Ceiling agreements limit the maximum interest rates the company pays on variable
rate financing agreements. Fixed interest rates do not change over the life of
the agreements. Variable interest rates are reset at least every ninety days and
are based on LIBOR or commercial paper indices and are settled with
counterparties at that time. Net interest received or paid on these contracts is
reflected in interest expense. The company is exposed to credit related losses
in the event of nonperformance by counterparties to the interest rate management
agreements. The company attempts to minimize this credit risk by only entering
into agreements with counterparties that have a Standard & Poor's rating of "A"
or higher. The company also diversifies its interest rate management agreements
among several financial institutions. Interest rate management agreements are
accounted for using settlement accounting.
43
<PAGE> 44
<TABLE>
<CAPTION>
Notional Amounts
Notes Swaps Ceilings
- --------------------------------------------------------------------------------
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable rate notes, maturing through 2002 $ 76,875 $ 1,875 $20,625
Weighted average interest rate 6.0%
Weighted average pay rate 4.4%
Weighted average receive rate 5.6%
Weighted average ceiling interest rate 7.2%
Fixed rate notes, maturing through 2000 85,036
Weighted average interest rate 6.1%
--------- ------- -------
Totals $ 161,911 $ 1,875 $20,625
========= ======= =======
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
September 30, 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Variable rate notes, maturing through 2000 $ 61,675 $ 10,938 $ 30,625
Weighted average interest rate 6.6%
Weighted average pay rate 5.1%
Weighted average receive rate 5.9%
Weighted average ceiling interest rate 7.2%
Fixed rate notes, maturing through 1999 70,000
Weighted average interest rate 6.0%
--------- -------- --------
Totals $ 131,675 $ 10,938 $ 30,625
========= ======== ========
</TABLE>
Loan agreements require financial services to maintain a minimum ratio of income
before income taxes and interest expense to interest expense of 1.25. The fair
value of financial services debt was $161,367 and $131,293 at September 30, 1996
and 1995, respectively. At September 30, 1996, maturities of notes were $68,322
in 1997, $38,010 in 1998, $32,364 in 1999, $14,299 in 2000 and $6,667 in 2001.
Interest paid was $9,032 in 1996, $7,211 in 1995 and $5,141 in 1994.
The interest rate swap agreement matures in 1997. At September 30, 1996,
notional amount maturities of ceiling agreements were $10,000 in 1997, $8,750 in
1998 and $1,875 in 1999. The fair values of interest rate swap agreements were
$6 and $62 at September 30, 1996 and 1995, respectively. The fair values of
interest rate ceiling agreements were $21 and $83 at September 30, 1996 and
1995, respectively. The premiums paid for an interest rate ceiling agreement is
amortized on a straight-line basis over the life of the agreement. Unamortized
premium costs were $219 at September 30, 1996 and $329 at September 30, 1995.
REVOLVING CREDIT AGREEMENTS
Information systems and financial services share variable rate revolving credit
agreements which total $110,000 and require commitment fees on unused credit. At
September 30, 1996, available balances under these agreements were $33,580.
FAIR VALUES
Fair values of financial instruments are determined using interest rates
available to the company for debt and interest rate management agreements with
the same remaining maturities.
44
<PAGE> 45
6. CAPITAL STOCK
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred
No par value
Authorized shares 60,000,000 60,000,000 60,000,000
Class A common
Par value per share $ .625 $ .625 $ .625
Authorized shares 120,000,000 120,000,000 60,000,000
============ ============ ===========
Issued and outstanding shares
Balance, beginning of year 82,011,136 83,415,152 84,476,044
Issued 605,877 1,342,926 2,144,268
Converted from Class B common 200,000
Repurchased (1,600,000) (2,712,600) (3,310,800)
Retired (56,442) (34,342) (94,360)
------------ ------------ -----------
Balance, end of year 80,960,571 82,011,136 83,415,152
============ ============ ===========
Class B common
Par value per share $ .03125 $ .03125 $ .03125
Authorized shares 30,000,000 30,000,000 30,000,000
Issued and outstanding shares 20,000,000 20,000,000 20,000,000
</TABLE>
Dividends on Class A common shares must be twenty times the dividends on Class B
common shares and must be paid simultaneously. Each share of Class A common and
Class B common is entitled to one vote. The Class B common shareholder may
convert twenty Class B common shares to one share of Class A common. In 1994,
4,000,000 Class B common shares were converted into 200,000 Class A common
shares. The company has reserved sufficient authorized Class A common shares for
Class B conversions and stock option plans.
Each outstanding Class A common share has one preferred share purchase right.
Each outstanding Class B common share has one-twentieth of a right. Rights
become exercisable if a person or group acquires or seeks to acquire, through a
tender or exchange offer, 20% or more of the company's Class A common shares. In
that event, all holders of Class A common shares and Class B common shares,
other than the acquirer, could exercise their rights and purchase preferred
shares at a substantial discount. At the date of these financial statements, the
company had no agreements or commitments with respect to the sale or issuance of
the preferred shares.
On August 6, 1996, the company's board of directors approved a two-for-one
common stock split. As a result of the split, on September 17, 1996, common
shareholders received one additional share for each share held as of September
3, 1996. Par value remained $.625 per Class A common share and $.03125 per Class
B common share. The company reclassified $25,629 to Class A common and $312 to
Class B common from additional paid-in capital and retained earnings for the par
value of the additional shares. Share and per share information presented in the
accompanying financial statements reflects the stock split.
The company repurchased Class A common shares for treasury at average prices of
$20.83 in 1996, $12.93 in 1995 and $11.80 in 1994. The remaining balance of
shares authorized for repurchase by the board of directors was 3,539,000 at
September 30, 1996. Treasury shares at September 30 were 11,402,821 in 1996,
10,408,698 in 1995 and 9,039,024 in 1994.
45
<PAGE> 46
7. EMPLOYEE STOCK OPTION PLANS
The company's stock option plans consist of incentive stock options and
non-qualified stock options to purchase Class A common shares which are awarded
to certain key employees. Stock options are generally granted at a price equal
to fair market value on the date of grant. Options may be granted at any price
not less than par value ($.625 at September 30, 1996). During the three years
ended September 30, 1996, no options were granted at a price less than fair
market value. At September 30, 1996, options to purchase 1,242,327 Class A
common shares were exercisable and options to purchase 2,648,232 additional
Class A common shares were available for future awards.
<TABLE>
<CAPTION>
Weighted Average
Shares Under Option Prices
Option Per Share
- -----------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, September 30, 1993 2,680,772 $ 3.52
Granted 5,471,280 12.38
Exercised (918,884) 3.26
Canceled (19,920) 10.00
---------
Outstanding, September 30, 1994 7,213,248 10.25
Granted 736,080 12.52
Exercised (547,256) 3.82
Canceled (82,000) 12.19
---------
Outstanding, September 30, 1995 7,320,072 10.94
Granted 996,710 17.27
Exercised (574,405) 5.31
Canceled (137,770) 12.78
---------
Outstanding, September 30, 1996 7,604,607 12.16
=========
</TABLE>
On August 7, 1996, the company's board of directors approved a non-qualified
stock option plan for substantially all employees not covered by an existing
stock option plan. Stock options to purchase Class A common shares may be
awarded each year at the discretion of the board of directors. The number of
options, terms and conditions of options are also determined by the board of
directors. Options may be granted at any price not less than par value ($.625 at
September 30, 1996). No options have been awarded as of September 30, 1996.
46
<PAGE> 47
8. POSTRETIREMENT BENEFITS
<TABLE>
<CAPTION>
PENSION EXPENSE
1996 1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Defined benefit plans
Service cost $ 6,525 $ 5,384 $ 5,314
Interest on projected benefit obligation 9,524 8,463 7,546
Actual return on plan assets (13,586) (12,640) (85)
Net amortization and deferral 6,100 5,535 (5,781)
-------- -------- -------
Net periodic pension cost 8,563 6,742 6,994
Defined contribution plans 2,313 2,007 1,916
Multi-employer plans 312 319 255
-------- -------- -------
Totals $ 11,188 $ 9,068 $ 9,165
======== ======== =======
Actuarial assumptions of defined benefit plans
Discount rate 7.875% 8.25% 7.5%
Rate of compensation increase 5.0% 5.0% 4.5%
Expected long-term rate of return on assets 9.0% 9.0% 9.0%
Actuarial cost method PROJECTED UNIT CREDIT
Measurement period JULY 1 - JUNE 30
</TABLE>
The company sponsors non-contributory, defined benefit pension plans for most
employees. Pension benefits are based on years of service and compensation
during an employee's final ten years of employment. The company's funding policy
is to make annual contributions to the plans sufficient to meet or exceed the
minimum statutory requirements. The company and its actuaries review the pension
plans each year. The actuarial assumptions are intended to reflect expected
experience over the life of the pension liability. In 1996 the company revised
actuarial assumptions regarding retirement age and incentive compensation to
better reflect expectations.
The company sponsors defined contribution savings plans covering most domestic
employees. Generally, contributions are funded monthly and represent 40% of the
first 3% of compensation contributed to the plan by participating employees. The
company also participates in several multi-employer plans which provide defined
benefits to union employees.
47
<PAGE> 48
<TABLE>
<CAPTION>
FUNDED STATUS OF DEFINED BENEFIT PENSION PLANS
SEPTEMBER 30, 1996 September 30, 1995
ABO ABO
ASSETS EXCEEDS Assets Exceeds
EXCEED ABO ASSETS Exceed ABO Assets
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Defined benefit plans
Vested benefit obligation $ 76,069 $ 26,407 $ 71,428 $ 22,200
========= ======== ======== ========
Accumulated benefit obligation (ABO) $ 79,584 $ 29,128 $ 73,732 $ 23,765
========= ======== ======== ========
Projected benefit obligation (PBO) $ 107,505 $ 32,725 $ 95,696 $ 26,768
Fair market value of plan assets (100,621) (2,775) (87,838) (2,187)
--------- -------- -------- --------
PBO greater than plan assets 6,884 29,950 7,858 24,581
Unrecognized net loss (8,553) (9,965) (10,832) (5,414)
Minimum pension liability 11,100 7,548
Unrecognized prior service cost (775) (2,500) (764) (2,556)
Unrecognized net asset (liability)
being amortized over 8 to 15 years 1,732 (2,232) 2,762 (2,581)
--------- -------- -------- --------
Net pension (asset) liability (712) 26,353 (976) 21,578
Multi-employer liability 206 219
--------- -------- -------- --------
Totals (asset) liability $ (712) $ 26.559 $ ( 976) $ 21,797
========= ======== ======== ========
Minimum pension liability
Intangible asset $ 4,735 $ 5,144
Deferred income tax benefit 2,582 974
Charge to shareholders' equity 3,783 1,430
-------- --------
Totals $ 11,100 $ 7,548
======== ========
Actuarial assumptions of defined benefit plans
PBO discount rate 8.0% 7.875%
Rate of compensation increase 3.75%-5.0% 5.0%
</TABLE>
At September 30, 1996 and 1995, about 51% and 53% of the plans' assets were
invested in cash and equivalents, government bonds and investment grade
corporate bonds. The balance of the plans' assets were invested in equities.
48
<PAGE> 49
<TABLE>
<CAPTION>
POSTRETIREMENT MEDICAL AND LIFE INSURANCE EXPENSE
1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Defined contribution plan $3,617 $3,434 $3,416
------ ------ ------
Defined benefit plans
Service cost 1,120 935 1,016
Interest on accumulated benefit obligation 3,150 2,835 2,460
------ ------ ------
Total defined benefit plans 4,270 3,770 3,476
------ ------ ------
Totals $7,887 $7,204 $6,892
====== ====== ======
Actuarial assumptions of defined benefit plans
Discount rate 7.875% 8.25% 7.5%
Healthcare cost trend rate through 2007 6.0% 6.0% 6.0%
Healthcare cost trend rate thereafter 5.0% 5.0% 5.0%
</TABLE>
The company funds a defined contribution plan, which covers substantially all
employees. This plan, known as Retiree Medical Savings Accounts, will enable
future retirees to purchase postretirement medical insurance from the company.
Contributions are funded annually based on the company's return on equity and
are the same for each eligible employee. Forfeitures of non-vested savings
accounts are used to reduce contributions required by the company.
The company sponsors a defined benefit medical plan for employees who retired
before October 1, 1993. Future retirees may purchase postretirement medical
insurance from the company using Retiree Medical Savings Accounts. Discounts
from the market price of postretirement medical insurance will be provided to
certain retirees based on age and length of remaining service as of October 1,
1993. These discounts are included in the determination of the accumulated
benefit obligation. The company also sponsors a defined benefit life insurance
plan for substantially all employees. The company funds medical and life
insurance benefits on a pay-as-you-go basis.
<TABLE>
<CAPTION>
POSTRETIREMENT MEDICAL AND LIFE INSURANCE OBLIGATION
1996 1995
- -------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation
Retirees $ 21,099 $ 21,681
Fully eligible active plan participants 6,629 6,724
Other active plan participants 13,854 12,455
Unrecognized net loss (1,978) (3,798)
-------- --------
Totals $ 39,604 $ 37,062
======== ========
Actuarial assumptions
Discount rate 8.0% 7.875%
Healthcare cost trend rate through 2007 6.0% 6.0%
Healthcare cost trend rate thereafter 5.0% 5.0%
</TABLE>
The effect of a 1% increase in the assumed healthcare cost trend rate would have
increased the service and interest cost components of postretirement medical
insurance in 1996 by $188 and the accumulated benefit obligation at September
30, 1996 by $2,297.
49
<PAGE> 50
9. CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INFORMATION SYSTEMS
Cash flows provided by (used for) operating activities
Net income $ 85,001 $ 70,625 $ 58,331
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 44,327 37,348 34,934
Deferred income taxes 1,605 (3,314) (2,484)
Deferred income taxes transferred to (from)
financial services (1,587) 8,664 6,026
Loss on sales of assets (2,677) (617) 3,743
Changes in operating assets and liabilities
Accounts receivable (22,050) (22,406) (10,184)
Inventories 15,038 4,500 2,687
Prepaid expenses, intangible and other assets (9,209) (6,279) (6,013)
Accounts payable 1,785 1,882 5,879
Accrued and other liabilities (1,888) 16,819 2,037
--------- --------- --------
Net cash provided by operating activities $ 110,345 $ 107,222 $ 94,956
========= ========= ========
FINANCIAL SERVICES
Cash flows provided by (used for) operating activities
Net income $ 8,737 $ 7,969 $ 7,873
Adjustments to reconcile net income to
net cash provided by operating activities
Deferred income taxes 4,022 15,557 9,538
Deferred income taxes transferred to (from)
information systems 1,587 (8,664) (6,026)
Changes in receivables, other assets
and other liabilities 1,103 (1,008) (618)
--------- --------- --------
Net cash provided by operating activities $ 15,449 $ 13,854 $ 10,767
========= ========= ========
</TABLE>
50
<PAGE> 51
10. SEGMENT REPORTING
The company conducts business throughout the United States and Canada in three
industry segments, computer systems, business forms and financial services.
The computer systems segment provides integrated computer systems products and
services to automotive and healthcare markets. The segment's products include
integrated software packages, computer hardware and related hardware and
software installation. Services include customer training and consulting,
hardware maintenance, software support and database management.
The business forms segment manufactures and distributes printed business forms
and systems, custom continuous and snap out forms, specialty printed products
and provides forms management services to automotive, healthcare and general
business markets.
The financial services segment provides financing for the company's computer
systems products to the automotive and healthcare markets.
<TABLE>
<CAPTION>
Computer Business Financial
Systems Forms Services Corporate Totals
- ------------------------------------------------------------------------------------------
1996
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales and revenues $478,994 $595,186 $ 26,263 $1,100,443
Operating income 69,751 80,629 14,445 164,825
Income before income taxes 72,123 80,723 14,445 $ (5,048) 162,243
Identifiable assets 196,508 363,214 313,282 50,640(1) 923,644
Depreciation and amortization 26,060 16,880 1,387 44,327
Capital expenditures 21,539 11,796 6,645 39,980
1995
- ------------------------------------------------------------------------------------------
Net sales and revenues $422,678 $465,902 $ 22,311 $ 910,891
Operating income 64,138 59,716 13,161 137,015
Income before income taxes 66,903 59,500 13,161 $ (2,809) 136,755
Identifiable assets 182,727 257,022 265,965 49,752(1) 755,466
Depreciation and amortization 21,832 14,246 1,270 37,348
Capital expenditures 18,462 10,927 1,361 30,750
1994
- ------------------------------------------------------------------------------------------
Net sales and revenues $363,763 $425,543 $ 19,488 $ 808,794
Operating income(2) 59,254 25,741 13,072 98,067
Income before income taxes(2) 61,760 25,448 13,072 $ (2,958) 97,322
Identifiable assets 139,038 242,838 204,107 48,716(1) 634,699
Depreciation and amortization 17,218 16,746 970 34,934
Capital expenditures 13,933 8,502 5,453 27,888
<FN>
(1) Principally cash and equivalents, and corporate headquarters office
building and contents.
(2) Business forms income was reduced by a $12,400 restructuring charge.
</TABLE>
51
<PAGE> 52
11. 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.
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. During the fourth quarter of
fiscal year 1996, the company accepted a de minimis settlement offer and has no
future obligation with respect to this 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. In 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 for this site remain
uncertain. Remediation costs for a typical CERCLA site on the National
Priorities List average about $30,000. The engineering evaluation/cost analysis
was consistent with this average. During the fourth quarter of fiscal year 1996,
an agreement was reached whereby the state of Connecticut will contribute $8,000
towards remediation costs.
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. During the
fourth quarter of fiscal year 1996, the company accepted a de minimis settlement
offer and is awaiting final approval. Upon final approval, the company will have
no further obligation with respect to this site.
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 September 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 September 30, 1996 and believes that the
reasonably foreseeable resolution will not have a material adverse effect on the
financial statements.
52
<PAGE> 53
12. ACCOUNTING STANDARDS
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This statement encourages, but does not require, stock options to
be accounted for under a fair value method. Companies are permitted to continue
accounting for stock options under the intrinsic value method prescribed by
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees." If APB Opinion No. 25 is followed, SFAS No. 123 requires
disclosure of the pro forma effect of the new standard on net income and
earnings per share. The company will continue to follow the accounting
prescribed by APB Opinion No. 25. This statement will be effective for the
fiscal year ending September 30, 1997.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. This statement
will be effective for transactions occurring after December 31, 1996 and may not
be applied earlier. The company believes this statement will not have a material
effect on the financial statements.
13. SUBSEQUENT EVENT
On November 19, 1996 the company signed a letter of intent to purchase Vanier
Graphics Corporation, a national provider of business forms and forms management
services. Vanier, a subsidiary of American Business Products, Inc., had annual
sales of about $150,000 in 1995. This transaction is expected to be finalized in
late December 1996, after the completion of the company's due diligence process.
53
<PAGE> 54
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------
1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales and revenues
Information systems $227,133 $250,538 $280,457 $316,052
Financial services 6,234 6,466 6,592 6,971
-------- -------- -------- --------
Totals $233,367 $257,004 $287,049 $323,023
======== ======== ======== ========
Costs and expenses
Cost of sales $115,746 $130,610 $146,636 $170,663
Selling, general and administrative expenses 77,487 83,439 94,314 104,905
Financial services 2,862 2,872 2,871 3,213
-------- -------- -------- --------
Totals $196.095 $216,921 $243,821 $278,781
======== ======== ======== ========
Net income $ 21,386 $ 22,958 $ 24,308 $ 25,086
Earnings per common share $ .25 $ .27 $ .28 $ .29
Cash dividends declared per share
Class A common $ .06 $ .06 $ .06 $ .07
Class B common $ .003 $ .003 $ .003 $ .0035
Closing market prices of Class A common shares
High $ 19.69 $ 20.50 $ 26.63 $ 27.00
Low $ 16.50 $ 18.31 $ 21.38 $ 22.31
1995
- -------------------------------------------------------------------------------------------
Net sales and revenues
Information systems $203,599 $223,138 $225,327 $236,516
Financial services 5,100 5,380 5,871 5,960
-------- -------- -------- --------
Totals $208,699 $228,518 $231,198 $242,476
======== ======== ======== ========
Costs and expenses
Cost of sales $107,758 $120,391 $120,094 $122,402
Selling, general and administrative expenses 65,866 72,554 74,229 81,432
Financial services 2,035 2,131 2,445 2,539
-------- -------- -------- --------
Totals $175,659 $195,076 $196,768 $206,373
======== ======== ======== ========
Net income $ 18,889 $ 19,330 $ 19,860 $ 20,515
Earnings per common share $ .22 $ .23 $ .23 $ .24
Cash dividends declared per share
Class A common $ .05 $ .05 $ .05 $ .05
Class B common $ .0025 $ .0025 $ .0025 $ .0025
Closing market prices of Class A common shares
High $ 12.94 $ 14.25 $ 15.31 $ 18.19
Low $ 11.13 $ 11.63 $ 13.00 $ 15.13
</TABLE>
54
<PAGE> 55
Schedule II
VALUATION ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995, AND 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E
-----------Additions----------- ----------Deductions----------
Balance Charged
at to Costs Other Write-offs Other Balance
Description Beginning and Net of at End
of Year Expenses (a) Recoveries (a) of Year
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Valuation Accounts - Deducted From Assets to Which They Apply
INFORMATION SYSTEMS
Reserves for accounts receivable:
Year ended September 30, 1996 $ 3,166 $ 2,325 $ 2,407 $ 2,154 $ 0 $ 5,744
Year ended September 30, 1995 2,683 1,977 202 1,696 0 3,166
Year ended September 30, 1994 6,090 1,040 52 4,102 397 2,683
Reserves for inventory:
Year ended September 30, 1996 1,387 1,926 5,033 1,346 0 7,000
Year ended September 30, 1995 1,503 1,660 0 1,776 0 1,387
Year ended September 30, 1994 1,887 1,761 0 1,943 202 1,503
Reserves for notes receivable:
Year ended September 30, 1996 471 170 0 215 0 426
Year ended September 30, 1995 731 (205) 0 55 0 471
Year ended September 30, 1994 3,023 575 0 2,867 0 731
FINANCIAL SERVICES
Reserves for finance receivables:
Year ended September 30, 1996 3,903 500 0 1,088 0 3,315
Year ended September 30, 1995 4,854 (150) 0 801 0 3,903
Year ended September 30, 1994 5,846 (700) 0 292 0 4,854
<FN>
(a) Includes adjustments from translation of foreign currency to United States
dollars and the effects of acquisitions and disposals of businesses.
</TABLE>
55
<PAGE> 56
INDEX OF EXHIBITS
Securities Exchange Act of 1934
<TABLE>
<CAPTION>
Page in
Exhibit Item Form
No. 10-K
- ------ ------------------------------------------------------------------------ -----------
<S> <C> <C>
(3)(a) Amended Articles of Incorporation, Restatement effective February 9,
1995; incorporated by reference to Exhibit A of the company's definitive
proxy statement dated January 5, 1995 filed with the Securities and
Exchange Commission.
(3)(b) Consolidated Code of Regulations; incorporated by reference to Exhibit B
to the company's definitive proxy statement dated January 8, 1990 filed
with the Securities and Exchange Commission.
(4)(a) Loan Agreement with Metropolitan Life Insurance Company dated September
17, 1986, incorporated by reference to Exhibit (4)(a) to Form 10-K for the
fiscal year ended September 30, 1986.
(4)(b) Copies of the agreements relating to long-term debt, which are not
required as exhibits to this Form 10-K, will be provided to the Securities
and Exchange Commission upon request.
(4)(c) Shareholder Rights Plan incorporated by reference to Exhibit I to the
company's Form 8-A (File No. 1-10147), which was adopted on May 6, 1991 and
filed with the Securities and Exchange Commission on May 8, 1991.
(9) Not applicable.
(10)(a) Amended and Restated Employment Agreement with David R. Holmes dated as
of October 1, 1995; incorporated by reference to Exhibit (10)(a) to Form
10-K for the fiscal year ended September 30, 1995.
(10)(b) Amended and Restated Employment Agreement with Robert C. Nevin
dated as of September 30, 1992; incorporated by reference to Exhibit
10)(e) to Form 10-K for the fiscal year ended September 30, 1992.
(10)(c) Amended and Restated Employment Agreement with Joseph N. Bausman dated
May 31, 1995; incorporated by reference to Exhibit (10)(e) to Form
10-K for the fiscal year ended September 30, 1995.
(10)(d) Employment Agreement with H. John Proud dated September 1, 1995;
incorporated by reference to Exhibit (10)(f) to Form 10-K for the fiscal
year ended September 30, 1995.
(10)(e) Settlement Agreement with Wayne C. Jira dated as of November 9, 1987;
incorporated by reference to Exhibit (10)(f) to Form 10-K for the fiscal
year ended September 30, 1987.
</TABLE>
56
<PAGE> 57
<TABLE>
<CAPTION>
Page in
Exhibit Item Form
No. 10-K
- ------ ------------------------------------------------------------------------ -----------
<S> <C> <C>
(10)(f) General form of Indemnification Agreement between the company and each
of its directors dated as of December 1, 1989; incorporated by reference to
Exhibit (10)(m) to Form 10-K for the fiscal year ended September 30, 1989.
(10)(g) Non-Qualified Stock Option Plan -- 1980, Amended and Restated August 11,
1987; incorporated by reference to Exhibit (10)(h) to Form 10-K for the
fiscal year ended September 30, 1987.
(10)(h) Amendment to Non-Qualified Stock Option Plan -- 1980 dated as of
December 8, 1989; incorporated by reference to Exhibit (10)(o) to Form 10-K
for the fiscal year ended September 30, 1989.
(10)(i) Amended and Restated Stock Option Plan -- 1989, effective September 29,
1993; incorporated by reference to Exhibit (10)(l) to Form 10-K for the
fiscal year ended September 30, 1993.
(10)(j) Stock Option Plan - 1995; incorporated by reference to Exhibit B of the
company's definitive proxy statement dated January 5, 1995; incorporated by
reference to Exhibit (10)(l) to Form 10-K for the fiscal year ended
September 30, 1995.
(10)(k) Performance Options Policy of the Compensation Committee of the Board of
Directors of The Reynolds and Reynolds Company under the Non-Qualified
Stock Option Plan -- 1980, effective October 1, 1986; incorporated by
reference to Exhibit (10)(i) to Form 10-K for the fiscal year ended
September 30, 1987.
(10)(l) Amendment and Restatement No. 1 to the Performance Options Policy of the
Compensation Committee of the Board of Directors of The Reynolds and
Reynolds Company under the Non-Qualified Stock Option Plan -- 1980,
effective October 28, 1987; incorporated by reference to Exhibit (10)(j) to
Form 10-K for the fiscal year ended September 30, 1987.
(10)(m) Amendment and Restatement No. 2 to the Performance Options Policy of the
Compensation Committee of the Board of Directors of The Reynolds and
Reynolds Company under the Non-Qualified Stock Option Plan -- 1980,
effective November 12, 1987; incorporated by reference to Exhibit (10)(k)
to Form 10-K for the fiscal year ended September 30, 1987.
(10)(n) The Reynolds and Reynolds Company Supplemental Retirement Plan;
incorporated by reference to Exhibit (10)(G) to Form 10-K for the fiscal
year ended September 30, 1980.
(10)(o) The Reynolds and Reynolds Company Supplemental Retirement Plan;
Amendment No. 2, adopted on August 17, 1982; incorporated by reference to
Exhibit (10)(j) to Form 10-K for the fiscal year ended September 30, 1982.
</TABLE>
57
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(10)(p) The Reynolds and Reynolds Company Supplemental Retirement Plan,
Amendment No. 3, adopted on August 16, 1983; incorporated by reference to
Exhibit (10)(j) to Form 10-K for the fiscal year ended September 30, 1983.
(10)(q) The Reynolds and Reynolds Company Supplemental Retirement Plan,
Amendment No. 4, adopted on November 6, 1984; incorporated by reference to
Exhibit (10)(l) to Form 10-K for the fiscal year ended September 30, 1984.
(10)(r) The Reynolds and Reynolds Company Supplemental Retirement Plan,
Amendment No. 5, adopted on May 13, 1985; incorporated by reference to
Exhibit (10)(s) to Form 10-K for the fiscal year ended September 30, 1985.
(10)(s) The Reynolds and Reynolds Company Supplemental Retirement Plan,
Amendment No. 6, adopted on February 11, 1986; incorporated by reference to
Exhibit (10)(r) to Form 10-K for the fiscal year ended September 30, 1986.
(10)(t) The Reynolds and Reynolds Company Supplemental Retirement Plan,
Amendment No. 7, adopted on August 12, 1986; incorporated by reference to
Exhibit (10)(s) to Form 10-K for the fiscal year ended September 30, 1986.
(10)(u) The Reynolds and Reynolds Company Supplemental Retirement Plan,
Amendment No. 8, adopted on February 10, 1987; incorporated by reference to
Exhibit (10)(s) to Form 10-K for the fiscal year ended September 30, 1987.
(10)(v) The Reynolds and Reynolds Company Supplemental Retirement Plan,
Amendment No. 9, adopted on August 11, 1987; incorporated by reference to
Exhibit (10)(t) to Form 10-K for the fiscal year ended September 30, 1987.
(10)(w) The Reynolds and Reynolds Company Supplemental Retirement Plan,
Amendment No. 10, adopted on May 8, 1989; incorporated by reference to
Exhibit (10)(dd) to Form 10-K for the fiscal year ended September 30, 1989.
(10)(x) The Reynolds and Reynolds Company Restated Supplemental Retirement Plan
adopted November 9, 1988; incorporated by reference to Exhibit (10)(ee) to
Form 10-K for the fiscal year ended September 30, 1989.
(10)(y) Resolution of the Board of Directors amending The Reynolds and Reynolds
Company Supplemental Retirement Plan dated as of December 1, 1989;
incorporated by reference to Exhibit (10)(ff) to Form 10-K for the fiscal
year ended September 30, 1989.
(10)(z) Resolution of the Board of Directors amending The Reynolds and Reynolds
Company Supplemental Retirement Plan (Amendment No. 1), dated as of
November 13, 1990; incorporated by reference to Exhibit (10)(ff) to Form
10-K for the fiscal year ended September 30, 1990.
</TABLE>
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(10)(aa) Resolution of the Board of Directors amending The Reynolds and Reynolds
Company Supplemental Retirement Plan (Amendment No. 2), dated as of July
23, 1991; incorporated by reference to Exhibit (10)(dd) to Form 10-K for
the fiscal year ended September 30, 1991.
(10)(bb) The Reynolds and Reynolds Company Supplemental Retirement Plan
Amendment No. 3, adopted August 8, 1995; incorporated by reference to
Exhibit (10) (dd) to Form 10-K for the fiscal year ended September 30,
1995.
(10)(cc) Description of The Reynolds and Reynolds Company Annual Incentive
Compensation Plan adopted as of October 1, 1986; incorporated by reference
to Exhibit (10)(t) to Form 10-K for the fiscal year ended September 30,
1987.
(10)(dd) Description of The Reynolds and Reynolds Company Amended and Restated
Annual Incentive Compensation Plan effective October 1, 1995; incorporated
by reference to (10)(ff) to Form 10-K for the fiscal year ended September
30, 1995.
(10)(ee) Description of The Reynolds and Reynolds Company Intermediate Incentive
Compensation Plan adopted as of October 1, 1986; incorporated by reference
to Exhibit (10)(v) to Form 10-K for the fiscal year ended September 30,
1987.
(10)(ff) Resolution of the Board of Directors amending The Reynolds and Reynolds
Company Intermediate Incentive Compensation Plan dated as of December 1,
1989; incorporated by reference to Exhibit (10)(jj) to Form 10-K for the
fiscal year ended September 30, 1989.
(10)(gg) The Reynolds and Reynolds Company Retirement Plan (formerly The
Reynolds and Reynolds Company Salaried Retirement Plan) October 1, 1995
Restatement; incorporated by reference to Exhibit (10)(ii) to Form 10-K for
the fiscal year ended September 30, 1995.
(10)(hh) The Reynolds and Reynolds Company Tax Deferred Savings and Protection
Plan ("401(k)" Plan), January 1, 1994 Restatement; incorporated by
reference to Exhibit (10)(jj) to Form 10-K for the fiscal year ended
September 30, 1995.
(10)(ii) The Reynolds and Reynolds Company Tax Deferred Savings and Protection
Plan ("401(k)" Plan) First Amendment adopted March 31, 1995; incorporated
by reference to Exhibit (10)(kk) to Form 10-K for the fiscal year ended
September 30, 1995.
(10)(jj) The Reynolds and Reynolds Company Tax Deferred Savings and Protection
Plan ("401(k)" Plan) Second Amendment adopted March 31, 1995; incorporated
by reference to Exhibit (10)(ll) to Form 10-K for the fiscal year ended
September 30, 1995.
</TABLE>
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(10)(kk) The Reynolds and Reynolds Company Tax Deferred Savings and Protection
Plan ("401(k)" Plan ) Third Amendment adopted August 8, 1995; incorporated
by reference to Exhibit (10)(mm) to Form 10-K for the fiscal year ended
September 30, 1995.
(10)(ll) The Reynolds and Reynolds Company Tax Deferred Savings and Protection
Plan ("401(k)" Plan) Fourth Amendment adopted August 8, 1995; incorporated
by reference to Exhibit (10)(nn) to Form 10-K for the fiscal year ended
September 30, 1995.
(10)(mm) The Reynolds and Reynolds Company Tax Deferred Savings and Protection
Plan ("401(k)" Plan) Fifth Amendment adopted March 1, 1996.
(10)(nn) The Reynolds and Reynolds Company Tax Deferred Savings and Protection
Plan ("401(k)" Plan) Sixth Amendment adopted January 23, 1996.
(10)(oo) The Reynolds and Reynolds Company Retiree Medical Savings Account Plan
effective October 1, 1993; incorporated by reference to Exhibit 10(oo)
to Form 10-K for the fiscal year ended September 30, 1995.
(10)(pp) The Reynolds and Reynolds Company Retiree Medical Savings Account Plan,
Amendment No. 1, adopted August 8, 1995; incorporated by reference to
Exhibit (10)(pp) to Form 10-K for the fiscal year ended September 30, 1995.
(10)(qq) General Form of Deferred Compensation Agreement between the company and
each of the following officers; incorporated by reference to Exhibit
(10)(p) to Form 10-K for the fiscal year ended September 30, 1983.
Joseph N. Bausman, R. H. Grant, III, David R. Holmes, Dale L.
Medford and Robert C. Nevin
(10)(rr) Resolution of the Board of Directors and General Form of Amendment
dated December 1, 1989 to the Deferred Compensation Agreements between the
company and each of the following officers; incorporated by reference to
Exhibit (10)(fff) to Form 10-K for the fiscal year ended September 30,
1989.
Joseph N. Bausman, R. H. Grant, III, David R. Holmes, Dale L.
Medford and Robert C. Nevin
(10)(ss) General Form of Collateral Assignment Split-Dollar Insurance Agreement
and Policy and Non-Qualified Compensation and Disability Benefit Agreement
between the company and each of the following officers; incorporated by
reference to Exhibit (10)(dd) to Form 10-K for the fiscal year ended
September 30, 1985.
Joseph N. Bausman, Michael J. Gapinski, R. H. Grant, III, David
R. Holmes, Adam M. Lutynski, Dale L. Medford and Robert C. Nevin.
</TABLE>
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(10)(tt) Resolution of the Board of Directors and General Form of Amendment
dated December 1, 1989 to the Non-Qualified Compensation and Disability
Benefit between the company and each of the following officers;
incorporated by reference to Exhibit (10)(hhh) to Form 10-K for the fiscal
year ended September 30, 1989.
Joseph N. Bausman, Michael J. Gapinski, R. H. Grant, III, David
R. Holmes, Adam M. Lutynski, Dale L. Medford and Robert C. Nevin.
(10)(uu) Agreement dated March 11, 1963, between the company and Richard H.
Grant, Jr., restricting transfer of Class B Common Stock of the company;
incorporated by reference to Exhibit 9 to Registration Statement No.
2-40237 on Form S-7.
(10)(vv) Amendment dated February 14, 1984 to Richard H. Grant, Jr.'s Agreement
restricting transfer of Class B Common Stock of the company dated March 11,
1963; incorporated by reference to Exhibit (10)(u) to Form 10-K for the
fiscal year ended September 30, 1984.
(10)(ww) Agreement and Plan of Merger dated April 20, 1996 among the company,
Delaware Acquisition Co. and Duplex Products Inc.; incorporated by
reference to Exhibit (c)(1) to the company's schedule 14 D-1 filed with the
Securities and Exchange Commission on April 22, 1996.
(10)(xx) Exchange Agreement dated May 29, 1992 among the company, Norick
Investment Company A Limited Partnership, Frances N. Lilly and Majorie K.
Norick; incorporated by reference to Exhibit 2(b) to the company's
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission on June 11, 1992 (Registration Statement No. 33-48546).
(10)(yy) Exchange Agreement dated May 29, 1992 between the company and Third
Generation Leasing Company; incorporated by reference to Exhibit 2(c) to
the company's Registration Statement on Form S-3 filed with the Securities
and Exchange Commission on June 11, 1992 (Registration Statement No.
33-48546).
(11) Not applicable
(12) Not applicable
(13) Not applicable
(18) Not applicable
(21) List of subsidiaries 63
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(22) Not applicable
(23) Consent of Independent Auditors 32
(24) Not applicable
(27) Financial Data Schedule
(28) Not applicable
(99) Not applicable
</TABLE>
62
<PAGE> 1
Exhibit (10)(mm)
FIFTH AMENDMENT TO
THE REYNOLDS AND REYNOLDS COMPANY
401(K) SAVINGS PLAN
(JANUARY 1, 1994 RESTATEMENT)
The Reynolds and Reynolds Company hereby amends The Reynolds and Reynolds
Company 401(k) Savings Plan (January 1, 1994 Restatement) (the "Plan") as
follows:
Effective for periods beginning on or after March 1, 1996, the first
sentence of Section 2.1 of the Plan is amended to provide as follows:
Each Employee who is in an eligible employment classification as set
forth in this Section 2.1 shall become an Eligible Employee on or as
soon as administratively practicable after the first date he is in an
eligible employment classification as set forth in this Section 2.1,
but in no event later than the first day of the sixth calendar week
beginning after the first date he is in an eligible employment
classification as set forth in this Section 2.1.
* * *
IN WITNESS WHEREOF, The Reynolds and Reynolds Company has caused this
Amendment to be executed by its duly authorized officer on this ____ day of
____________, 1996.
ATTEST: THE REYNOLDS AND REYNOLDS COMPANY
_______________________ By: ______________________________
Title:
<PAGE> 1
Exhibit (10)(nn)
SIXTH AMENDMENT TO
THE REYNOLDS AND REYNOLDS COMPANY
401(K) SAVINGS PLAN
(JANUARY 1, 1994 RESTATEMENT)
-----------------------------
The Reynolds and Reynolds Company hereby amends The Reynolds and Reynolds
Company 401(k) Savings Plan (January 1, 1994 Restatement) (the "Plan") as
follows:
Effective as of January 23, 1996, the definition of "Enrollment Date" in
Section 1.1 of the Plan is amended by adding as a new sentence at the end
thereof the following:
Notwithstanding the foregoing, with respect to persons who were
employees of Jordan Graphics, Inc. on January 23, 1996 and became
Employees on January 23, 1996, January 23, 1996, shall be an Enrollment
Date.
* * *
IN WITNESS WHEREOF, The Reynolds and Reynolds Company has caused this
Amendment to be executed by its duly authorized officer on this 22nd day of
January, 1996.
ATTEST: THE REYNOLDS AND REYNOLDS COMPANY
__________________ By:______________________________
Title:
<PAGE> 1
EXHIBIT (21)
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION OF
NAME INCORPORATION OR ORGANIZATION
- ----------------------------------------------------------------------------------------
<S> <C>
Dataforms, Inc. Wisconsin
Duplex Products Inc. Delaware
Formcraft, Inc. Texas
Reyna Financial Corporation Ohio
Reyna Leasing Corporation * New York
Reynolds and Reynolds (Canada) Limited Canada
Reynolds Vehicle Registration, Inc. Ohio
Salcris Corporation Alabama
<FN>
* Wholly-owned subsidiary of Reyna Financial Corporation
</TABLE>
63
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 11,130
<SECURITIES> 0
<RECEIVABLES> 167,022
<ALLOWANCES> 5,744
<INVENTORY> 53,202
<CURRENT-ASSETS> 271,083
<PP&E> 341,254
<DEPRECIATION> 173,587
<TOTAL-ASSETS> 923,644
<CURRENT-LIABILITIES> 167,278
<BONDS> 178,190
<COMMON> 51,226
0
0
<OTHER-SE> 321,769
<TOTAL-LIABILITY-AND-EQUITY> 923,644
<SALES> 756,664
<TOTAL-REVENUES> 1,100,443
<CGS> 438,041
<TOTAL-COSTS> 563,655
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,850
<INCOME-PRETAX> 162,243
<INCOME-TAX> 68,505
<INCOME-CONTINUING> 93,738
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,738
<EPS-PRIMARY> 1.10
<EPS-DILUTED> 1.10
</TABLE>
