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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 1995
0-132
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(Commission file number)
THE REYNOLDS AND REYNOLDS COMPANY
---------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-0421120
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
115 SOUTH LUDLOW STREET, DAYTON, OHIO 45402
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(Address of principal executive offices)
(513) 443-2000
----------------
(Registrant's telephone number)
NONE
----
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
On February 9, 1996, 40,823,526 Class A common shares and 10,000,000 Class B
common shares were outstanding.
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THE REYNOLDS AND REYNOLDS COMPANY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Consolidated Income
For the Three Months Ended December 31, 1995 and 1994 3
Condensed Consolidated Balance Sheets
As of December 31, 1995 and September 30, 1995 4
Condensed Statements of Consolidated Cash Flows
For the Three Months Ended December 31, 1995 and 1994 5
Notes to Condensed Consolidated Financial Statements 6
Independent Accountants' Review Report 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
For the Three Months Ended December 31, 1995 and 1994 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE REYNOLDS AND REYNOLDS COMPANY
STATEMENTS OF CONSOLIDATED INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months
----------------------------
1995 1994
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<S> <C> <C>
Net Sales and Revenues
Information systems
Products $151,545 $142,362
Services 75,588 61,237
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Total information systems 227,133 203,599
Financial services 6,234 5,100
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Total net sales and revenues 233,367 208,699
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Costs and Expenses
Information systems
Cost of sales
Products 86,953 82,294
Services 28,793 25,464
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Total cost of sales 115,746 107,758
Selling, general and administrative expenses 77,487 65,866
Financial services 2,862 2,035
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Total costs and expenses 196,095 175,659
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Operating Income 37,272 33,040
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Other Charges (Income)
Interest expense 1,018 818
Interest income (660) (433)
Other (275) (214)
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Total other charges 83 171
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Income Before Income Taxes 37,189 32,869
Provision for Income Taxes 15,803 13,980
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Net Income $ 21,386 $ 18,889
============ ============
Earnings Per Common Share $ 0.50 $0.44
============ ============
Average Number of Common Shares Outstanding 42,690 42,736
============ ============
Cash Dividends Declared Per Common Share $ 0.12 $ 0.10
============ ============
See Independent Accountants' Review Report and Notes to Condensed Consolidated Financial Statements.
</TABLE>
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THE REYNOLDS AND REYNOLDS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND SEPTEMBER 30, 1995
(In thousands)
<TABLE>
<CAPTION>
12/31/95 9/30/95
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<S> <C> <C>
INFORMATION SYSTEMS ASSETS
Current Assets
Cash and equivalents $ 17,593 $ 18,366
Accounts receivable 114,902 114,617
Inventories 42,027 37,796
Other current assets 20,058 17,412
------------ ------------
Total current assets 194,580 188,191
Property, Plant and Equipment, less accumulated depreciation of
$159,041 at 12/31/95 and $153,584 at 9/30/95 130,925 128,462
Goodwill 99,294 101,275
Other Intangible Assets 27,638 28,614
Other Assets 46,748 42,959
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Total Information Systems Assets 499,185 489,501
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FINANCIAL SERVICES ASSETS
Finance Receivables 274,610 264,901
Cash and Other Assets 1,382 1,064
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Total Financial Services Assets 275,992 265,965
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TOTAL ASSETS $775,177 $755,466
============ ============
INFORMATION SYSTEMS LIABILITIES
Current Liabilities $129,254 $125,833
Long-Term Debt 41,249 41,443
Other Liabilities 54,911 55,153
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Total Information Systems Liabilities 225,414 222,429
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FINANCIAL SERVICES LIABILITIES
Notes Payable 138,800 131,675
Other Liabilities 70,829 68,807
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Total Financial Services Liabilities 209,629 200,482
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SHAREHOLDERS' EQUITY
Capital Stock 25,817 25,941
Additional Paid-In Capital 16,194 15,815
Other Adjustments (3,772) (3,581)
Retained Earnings 301,895 294,380
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Total Shareholders' Equity 340,134 332,555
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $775,177 $755,466
============ ============
See Independent Accountants' Review Report and Notes to Condensed Consolidated Financial Statements.
</TABLE>
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THE REYNOLDS AND REYNOLDS COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(In thousands)
<TABLE>
<CAPTION>
1995 1994
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<S> <C> <C>
INFORMATION SYSTEMS
Cash Flows Provided By Operating Activities $18,997 $19,615
------------ ------------
Cash Flows Provided By (Used For) Investing Activities
Business combinations (117) (11,543)
Capital expenditures (9,214) (6,449)
Net proceeds from asset sales 545 871
Capitalization of software licensed to customers (824) (395)
Advances to financial services (920) (1,166)
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Net cash flows used for investing activities (10,530) (18,682)
------------ ------------
Cash Flows Provided By (Used For) Financing Activities
Additional borrowings 3,500
Principal payments on debt (178) (53)
Capital stock issued 314 402
Capital stock repurchased (9,073) (16,997)
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Net cash flows used for financing activities (8,937) (13,148)
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Effect of Exchange Rate Changes on Cash (303) (751)
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Decrease in Cash and Equivalents (773) (12,966)
Cash and Equivalents, Beginning of Period 18,366 20,230
------------ ------------
Cash and Equivalents, End of Period $17,593 $7,264
============ ============
FINANCIAL SERVICES
Cash Flows Provided By Operating Activities $3,400 $3,047
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Cash Flows Provided By (Used For) Investing Activities
Finance receivables originated (28,487) (24,764)
Collections on finance receivables 17,314 14,862
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Net cash flows used for investing activities (11,173) (9,902)
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Cash Flows Provided By (Used For) Financing Activities
Additional borrowings 15,250 12,350
Principal payments on debt (8,125) (7,000)
Advances from information systems 920 1,166
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Net cash flows provided by financing activities 8,045 6,516
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Increase (Decrease) in Cash and Equivalents 272 (339)
Cash and Equivalents, Beginning of Period 663 1,200
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Cash and Equivalents, End of Period $935 $861
============ ============
See Independent Accountants' Review Report and Notes to Condensed Consolidated Financial Statements.
</TABLE>
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THE REYNOLDS AND REYNOLDS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The balance sheet as of September 30, 1995, is condensed financial information
taken from the audited balance sheet. The interim financial statements are
unaudited. In the opinion of management, the accompanying interim financial
statements contain all significant adjustments (which consist only of normal
recurring adjustments) necessary to present fairly the company's financial
position, results of operations and cash flows for the periods presented.
(2) CONTINGENCIES
The U.S. Environmental Protection Agency (EPA) has designated the company as
one of a number of potentially responsible parties (PRP) under the
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA)
at three environmental remediation sites. The EPA has contended that any
company linked to a CERCLA site is potentially liable for all response costs
under the legal doctrine of joint and several liability.
The first site relates to a privately owned and operated solid waste disposal
facility. The EPA has issued a record of decision mandating certain
remediation activities. The company has shared costs with other PRPs for the
remedial investigation and feasibility study of the site. The company believes
it is a minor participant, and has accrued its estimated share of response
costs as of December 31, 1995. The company believes that the reasonably
foreseeable resolution will not have a material adverse effect on the financial
statements.
The second site involves a municipal waste disposal facility owned and operated
by four municipalities. The company joined a PRP coalition and is sharing
remedial investigation and feasibility study costs with other PRPs. During the
quarter ended June 30, 1994, the PRP coalition received an engineering
evaluation/cost analysis of the presumed remedy for the site from its private
contractor. However, because the EPA has not yet selected a remedy, potential
remediation costs remain uncertain. Remediation costs for a typical CERCLA
site on the National Priorities List average about $30,000. The engineering
evaluation/cost analysis was consistent with this average. The company has
accrued its estimated share of response costs as of December 31, 1995 and
believes that the reasonably foreseeable resolution will not have a material
adverse effect on the financial statements.
In January 1994, by means of a special notice letter, the EPA notified the
company that it was considered to be one of more than three hundred PRPs at a
former drum reconditioning facility. A remedial investigation and feasibility
study is complete. A record of decision has been issued, and a statement of
work for the remedial design and remedial action is in circulation. The
company was unable to substantiate any previous involvement with this facility
and believes that the reasonably foreseeable resolution of this matter will not
have a material adverse effect on the financial statements.
See Independent Accountants' Review Report.
6
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INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Board of Directors,
The Reynolds and Reynolds Company:
We have reviewed the accompanying condensed consolidated balance sheet of The
Reynolds and Reynolds Company and subsidiaries as of December 31, 1995, and the
related statements of consolidated income and condensed consolidated cash flows
for the three months ended December 31, 1995 and 1994. These financial
statements are the responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and of making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such condensed consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of The Reynolds and Reynolds Company
and subsidiaries as of September 30, 1995 and the related consolidated
statements of income, shareholders' equity, and cash flows for the year then
ended (not presented herein); and in our report dated November 10, 1995, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed
consolidated balance sheet as of September 30, 1995 is fairly stated in all
material respects in relation to the consolidated balance sheet from which it
has been derived.
DELOITTE & TOUCHE LLP
Dayton, Ohio
February 12, 1995
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE REYNOLDS AND REYNOLDS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(Dollars in thousands except per share data)
RESULTS OF OPERATIONS
CONSOLIDATED SUMMARY
<TABLE>
<CAPTION>
1995 1994 Change % Change
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues $233,367 $208,699 $24,668 12%
Gross profit $111,387 $95,841 $15,546 16%
Operating income $37,272 $33,040 $4,232 13%
Net income $21,386 $18,889 $2,497 13%
Earnings per share $0.50 $0.44 $0.06 14%
</TABLE>
Consolidated revenues were the highest first quarter ever and the second
highest for any quarter in the company's history. Computer systems, business
forms and financial services all posted double digit percentage sales
increases, as compared to last year. The effect of last year's business
combinations was to increase consolidated revenues about $12 million in the
first quarter.
Consolidated gross profit increased to 49.0% of revenues in the first quarter,
compared to 47.1% last year. Both computer systems and business forms gross
profit percentage increased over last year. Selling, general and
administrative expenses increased to 34.1% of revenues from 32.4% last year
reflecting investments in new computer systems products.
First quarter's consolidated operating income was the highest for any quarter
in the company's history. Business forms operating income increased more than
50% over last year while financial services increased 10%. Computer systems
operating income declined from 1995's first quarter because of continued
investments in healthcare systems and new automotive products.
The earnings per share percentage increase was slightly higher than net
income's because of share repurchases which reduced outstanding shares.
Annualized return on average shareholders' equity was 24%, approximating last
year's.
COMPUTER SYSTEMS (excluding financial services)
<TABLE>
<CAPTION>
1995 1994 Change % Change
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues $110,467 $100,410 $10,057 10%
Gross profit $55,105 $47,585 $7,520 16%
% of revenues 49.9% 47.4%
Operating income $16,634 $18,896 ($2,262) -12%
% of revenues 15.1% 18.8%
</TABLE>
Computer systems first quarter revenues increased 8% for automotive systems
and 39% for healthcare systems because of higher recurring service revenues for
automotive computer systems and the effect of fiscal year 1995 acquisitions for
both automotive and healthcare systems. Automotive recurring service revenues
continued to grow because of the increased number of software applications
supported and was responsible for automotive systems' growth. The December 31,
1995 backlog of product sales orders approximated the September 30, 1995
backlog. Business combinations contributed about $6 million of the segment's
sales growth in the first quarter.
Computer systems first quarter operating income decreased from last year for
both automotive and healthcare systems. Automotive systems gross profit
percentage increased to 50.2% from 47.9% last year primarily because of a
greater mix of
8
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higher margin recurring service revenues. However, higher SG&A expenses
associated with the continued investment in new products caused operating
income to decline. Operating income is expected to rise once sales of these
new products increase. Healthcare systems gross profit margin increased, but
it too experienced higher SG&A expenses as a result of last year's business
combinations and implementing sales, marketing and product development
strategies for future growth. Both automotive and healthcare systems improved
their operating income from the fourth quarter of fiscal year 1995.
BUSINESS FORMS
<TABLE>
<CAPTION>
1995 1994 Change % Change
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues $116,666 $103,189 $13,477 13%
Gross profit $56,282 $48,256 $8,026 17%
% of revenues 48.2% 46.8%
Operating income $17,266 $11,079 $6,187 56%
% of revenues 14.8% 10.7%
</TABLE>
Business forms revenues increased primarily as a result of strong growth in
general business forms and forms management services. About $6 million or
nearly half of the general business forms revenue growth resulted from 1995
business combinations. Business forms revenues also reflected higher sales
prices because of fiscal year 1995's growth in paper costs.
Business forms operating income increased for both automotive forms and general
business forms (including forms management services). Automotive forms
operating income rose as SG&A expenses declined as a percentage of sales and
offset a slight decrease in gross profit margin. General business forms
operating income grew significantly as gross profit margins improved more than
four percentage points. Gross profit margins improved, in large part, as a
result of the 1994 restructuring which reduced low margin computer paper sales
and improved the sales mix. Automotive and general business forms gross profit
margins also benefited from lower LIFO inventory adjustments than last year,
when paper costs were rising rapidly. The paper market was more stable during
the first quarter of fiscal year 1996. General business forms SG&A expenses
also declined as a percentage of revenues, primarily as a result of cost
reductions from the 1994 restructuring and cost control measures.
FINANCIAL SERVICES
<TABLE>
<CAPTION>
1995 1994 Change % Change
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues $6,234 $5,100 $1,134 22%
Operating income $3,372 $3,065 $307 10%
% of revenues 54.1% 60.1%
</TABLE>
Financial services revenues increased for the first quarter because of interest
earned on higher average finance receivables. Average finance receivables
increased almost 30% over last year because of strong ERA automotive systems
sales over the last twelve months. Interest income did not increase as rapidly
as finance receivables because interest rates on new receivables were lower on
average than interest rates on maturing receivables.
Financial services operating income increased at a slower rate than revenues in
the first quarter because of the effect of higher average borrowing costs. Bad
debt expenses, while at historically low levels, were slightly higher than last
year.
The company has entered into various interest rate management agreements to
limit interest rate exposure on financial services variable rate debt. It is
important to manage this interest rate exposure because the proceeds from these
borrowings were invested in fixed rate finance receivables. The company
believes it has reduced interest expense by using interest rate management
agreements and variable rate debt instead of directly obtaining fixed rate
debt. During the first quarter of fiscal year 1996 the company did not enter
into any new interest rate management agreements.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Information systems strong cash flows from operating activities of $18,997
resulted from information systems net income of $19,360. Depreciation and
amortization expenses increased to $10,086, compared to $8,154 last year
primarily because of assets recorded in connection with last year's business
combinations. Capital expenditures of $9,214 occurred in the normal course of
business. The company also repurchased $9,073 of capital stock in the first
quarter. See the shareholders' equity caption of this analysis for a further
discussion of share repurchases.
Financial services operating cash flows and collections on finance receivables
were invested in new finance receivables for the company's computer systems and
used to make scheduled debt repayments.
CAPITALIZATION
The company's ratio of total debt (total information systems debt) to
capitalization (total information systems debt plus shareholders' equity) was
13.1% at December 31, 1995 and 13.4% at September 30, 1995. Remaining credit
available under existing revolving credit agreements was $35,200 at December
31, 1995. In addition to committed credit agreements, the company also has a
variety of other short-term credit lines available. The company estimates that
cash flow from operations and cash available from existing credit agreements
will be sufficient to fund fiscal year 1996 normal operations. Capital
expenditures in the ordinary course of business are anticipated to be about $35
million in 1996.
SHAREHOLDERS' EQUITY
The company lists its Class A common shares on the New York Stock Exchange.
There is no principal market for the Class B common shares. The company also
has an authorized class of 60 million preferred shares with no par value. As
of February 12, 1996, none of these preferred shares was outstanding and there
were no agreements or commitments with respect to the sale or issuance of these
shares.
Dividends are typically declared each November, February, May and August and
paid in January, April, June and September, respectively. Dividends per Class
A common share must be twenty times the dividends per Class B common share and
all dividend payments must be simultaneous. In November 1995, the company's
board of directors increased the quarterly dividend 20% to $.12 per Class A
common share. The company has increased cash dividends per share nine times
since 1989 and paid dividends each year since the company's initial public
offering in 1961.
The company has conducted an active share repurchase program during recent
years to provide increased returns to shareholders. During the first quarter
of fiscal year 1996, the company repurchased 250,000 Class A common shares for
$9,073, an average price of $36.29 per share. The company could repurchase an
additional 2,319,500 Class A common shares under existing board of directors'
authorizations as of December 31, 1995.
ENVIRONMENTAL MATTERS
See Note 2 to the Consolidated Financial Statements for a discussion of the
company's environmental contingencies.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended December 31, 1995.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE REYNOLDS AND REYNOLDS COMPANY
Date February 12, 1996 /s/ Dale L. Medford
------------------------- ------------------------------------
Dale L. Medford
Vice President, Corporate Finance and
Chief Financial Officer
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 17,593
<SECURITIES> 0
<RECEIVABLES> 118,323
<ALLOWANCES> 3,421
<INVENTORY> 42,027
<CURRENT-ASSETS> 194,580
<PP&E> 289,966
<DEPRECIATION> 159,041
<TOTAL-ASSETS> 775,177
<CURRENT-LIABILITIES> 129,254
<BONDS> 149,549
<COMMON> 25,817
0
0
<OTHER-SE> 314,317
<TOTAL-LIABILITY-AND-EQUITY> 775,177
<SALES> 151,545
<TOTAL-REVENUES> 233,367
<CGS> 86,953
<TOTAL-COSTS> 115,746
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,180
<INCOME-PRETAX> 37,189
<INCOME-TAX> 15,803
<INCOME-CONTINUING> 21,386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,386
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
