<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 1996
0-132
-----
(Commission file number)
THE REYNOLDS AND REYNOLDS COMPANY
---------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-0421120
---- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
115 SOUTH LUDLOW STREET, DAYTON, OHIO 45402
-------------------------------------------
(Address of principal executive offices)
(513) 443-2000
--------------
(Registrant's telephone number)
NONE
----
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-- --
On August 9, 1996, 40,586,227 Class A common shares and 10,000,000 Class B
common shares were outstanding.
<PAGE> 2
THE REYNOLDS AND REYNOLDS COMPANY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Consolidated Income
For the Three and Nine Months Ended June 30, 1996 and 1995 3
Condensed Consolidated Balance Sheets
As of June 30, 1996 and September 30, 1995 4
Condensed Statements of Consolidated Cash Flows
For the Nine Months Ended June 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
For the Three and Nine Months Ended June 30, 1996 and 1995 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE REYNOLDS AND REYNOLDS COMPANY
STATEMENTS OF CONSOLIDATED INCOME
FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Nine Months
---------------------- ----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales and Revenues
Information systems
Products $ 199,312 $ 156,727 $ 524,037 $ 457,284
Services 81,145 68,600 234,091 194,780
--------- --------- --------- ---------
Total information systems 280,457 225,327 758,128 652,064
Financial services 6,592 5,871 19,292 16,351
--------- --------- --------- ---------
Total net sales and revenues 287,049 231,198 777,420 668,415
--------- --------- --------- ---------
Costs and Expenses
Information systems
Cost of sales
Products 114,728 93,159 300,531 269,075
Services 31,908 26,935 92,461 79,168
--------- --------- --------- ---------
Total cost of sales 146,636 120,094 392,992 348,243
Selling, general and administrative expenses 94,314 74,229 255,240 212,649
Financial services 2,871 2,445 8,605 6,611
--------- --------- --------- ---------
Total costs and expenses 243,821 196,768 656,837 567,503
--------- --------- --------- ---------
Operating Income 43,228 34,430 120,583 100,912
--------- --------- --------- ---------
Other Charges (Income)
Interest expense 1,332 972 3,291 2,760
Interest income (416) (436) (1,402) (1,158)
Other (370) (540) (1,108) (1,490)
--------- --------- --------- ---------
Total other charges (income) 546 (4) 781 112
--------- --------- --------- ---------
Income Before Income Taxes 42,682 34,434 119,802 100,800
Provision for Income Taxes 18,374 14,574 51,150 42,721
--------- --------- --------- ---------
Net Income $ 24,308 $ 19,860 $ 68,652 $ 58,079
========= ========= ========= =========
Earnings Per Common Share $ 0.57 $ 0.47 $ 1.61 $ 1.37
========= ========= ========= =========
Average Number of Common Shares Outstanding 42,719 42,480 42,615 42,469
========= ========= ========= =========
Cash Dividends Declared Per Common Share $ 0.12 $ 0.10 $ 0.36 $ 0.30
========= ========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
THE REYNOLDS AND REYNOLDS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1996 AND SEPTEMBER 30, 1995
(In thousands)
<TABLE>
<CAPTION>
6/30/96 9/30/95
--------- ---------
<S> <C> <C>
INFORMATION SYSTEMS ASSETS
Current Assets
Cash and equivalents $ 5,543 $ 18,366
Accounts receivable 167,138 114,617
Inventories 53,109 37,796
Other current assets 46,694 17,412
--------- ---------
Total current assets 272,484 188,191
Property, Plant and Equipment, less accumulated depreciation of
$168,371 in 1996 and $153,584 in 1995 162,050 128,462
Goodwill 95,842 101,275
Other Intangible Assets 26,821 28,614
Other Assets 50,209 42,959
--------- ---------
Total Information Systems Assets 607,406 489,501
--------- ---------
FINANCIAL SERVICES ASSETS
Finance Receivables 296,049 264,901
Cash and Other Assets 1,141 1,064
--------- ---------
Total Financial Services Assets 297,190 265,965
--------- ---------
TOTAL ASSETS $ 904,596 $ 755,466
========= =========
INFORMATION SYSTEMS LIABILITIES
Current Liabilities $ 155,121 $ 125,833
Long-Term Debt 90,629 41,443
Other Liabilities 58,484 55,153
--------- ---------
Total Information Systems Liabilities 304,234 222,429
--------- ---------
FINANCIAL SERVICES LIABILITIES
Notes Payable 155,846 131,675
Other Liabilities 72,657 68,807
--------- ---------
Total Financial Services Liabilities 228,503 200,482
--------- ---------
SHAREHOLDERS' EQUITY
Capital Stock 25,781 25,941
Additional Paid-In Capital 17,804 15,815
Other Adjustments (3,536) (3,581)
Retained Earnings 331,810 294,380
--------- ---------
Total Shareholders' Equity 371,859 332,555
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 904,596 $ 755,466
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
THE REYNOLDS AND REYNOLDS COMPANY AND SUBSIDIARIES
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(In thousands)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
INFORMATION SYSTEMS
Cash Flows Provided By Operating Activities $ 75,310 $ 77,115
-------- --------
Cash Flows Provided By (Used For) Investing Activities
Business combinations (77,523) (18,885)
Capital expenditures (27,787) (22,577)
Net proceeds from asset sales 5,958 3,159
Capitalization of software licensed to customers (3,307) (2,255)
Repayments from (advances to) financial services 3,518 (7,366)
-------- --------
Net cash flows used for investing activities (99,141) (47,924)
-------- --------
Cash Flows Provided By (Used For) Financing Activities
Additional borrowings 47,491 1,254
Principal payments on debt (6,159) (4,521)
Cash dividends paid (14,837) (12,502)
Capital stock issued 1,469 762
Capital stock repurchased (16,666) (24,529)
-------- --------
Net cash flows provided by (used for) financing activities 11,298 (39,536)
-------- --------
Effect of Exchange Rate Changes on Cash (290) (372)
-------- --------
Decrease in Cash and Equivalents (12,823) (10,717)
Cash and Equivalents, Beginning of Period 18,366 20,230
-------- --------
Cash and Equivalents, End of Period $ 5,543 $ 9,513
======== ========
FINANCIAL SERVICES
Cash Flows Provided By Operating Activities $ 10,634 $ 10,042
-------- --------
Cash Flows Provided By (Used For) Investing Activities
Finance receivables originated (87,184) (85,973)
Collections on finance receivables 56,025 47,037
-------- --------
Net cash flows used for investing activities (31,159) (38,936)
-------- --------
Cash Flows Provided By (Used For) Financing Activities
Additional borrowings 54,033 55,000
Principal payments on debt (29,862) (33,963)
Advances from (repayments to) information systems (3,518) 7,366
-------- --------
Net cash flows provided by financing activities 20,653 28,403
-------- --------
Increase (Decrease) in Cash and Equivalents 128 (491)
Cash and Equivalents, Beginning of Period 663 1,200
-------- --------
Cash and Equivalents, End of Period $ 791 $ 709
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 6
THE REYNOLDS AND REYNOLDS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The balance sheet as of September 30, 1995, is condensed financial information
taken from the audited balance sheet. The interim financial statements are
unaudited. In the opinion of management, the accompanying interim financial
statements contain all significant adjustments (which consist only of normal
recurring adjustments) necessary to present fairly the company's financial
position, results of operations and cash flows for the periods presented.
(2) INVENTORIES
<TABLE>
<CAPTION>
6/30/96 9/30/95
------- -------
<S> <C> <C>
Finished products $39,922 $33,064
Work in process 2,058 1,541
Raw materials and supplies 11,129 3,191
------- -------
Total inventories $53,109 $37,796
======= =======
</TABLE>
(3) BUSINESS COMBINATIONS
On April 22, 1996 the company announced a cash tender offer to acquire the
outstanding shares of Duplex Products Inc. (Duplex) for $12 per share. On May
20, 1996 the company purchased the tendered shares of Duplex for a total
purchase price of $89.8 million. Duplex, a provider of business forms and
labels, electronic printing and mailing services, document management programs,
forms automation solutions and process analysis to customers throughout the
United States, reported sales of $275 million in 1995. The company initially
financed this transaction through existing revolving credit agreements.
Ultimately, the company expects to obtain new long-term financing and repay the
revolving credit agreement borrowings.
On January 23, 1996, the company purchased substantially all net assets of
Jordan Graphics from Ruddick Corporation for $9.4 million, paid from existing
cash balances. Jordan Graphics, a provider of business forms and document
management services to customers located primarily in the eastern United States,
had 1995 sales of over $50 million.
These business combinations were accounted for as purchases and the accounts of
the acquired companies were included in the company's financial statements since
their respective dates of acquisition. Goodwill recorded in accounting for the
Jordan transaction is being amortized on a straight-line basis over ten years.
No goodwill was recorded for the Duplex transaction.
The following unaudited pro forma results of operations give effect to the
Jordan and Duplex business combinations as if they had occurred on October 1,
1994. The 1995 pro forma results combine the nine months ended June 30, 1995 for
the company and Jordan and the nine months ended July 29, 1995 for Duplex. The
1996 pro forma results combine the nine months ended June 30, 1996 for all
entities. These pro forma results of operations may not be indicative of the
results of operations that actually would have been obtained if the business
combinations had been in effect or that may be obtained in the future.
<TABLE>
<CAPTION>
9 Months 9 Months
1996 1995
-------- --------
<S> <C> <C>
Net sales and revenues $951,121 $922,056
Income before extraordinary items 67,283 55,606
Net income 67,283 55,606
Earnings per common share 1.58 1.31
</TABLE>
6
<PAGE> 7
(4) SUBSEQUENT EVENTS
On August 6, 1996 the company's board of directors authorized a two-for-one
common stock split to be paid September 17, 1996 to shareholders of record as of
September 3, 1996. The board also increased the regular quarterly dividend 17%
from $.12 per share ($.06 per share post split) to $.14 per share ($.07 per
share post split).
At the same meeting the board also approved a new, broad-based employee stock
option plan. This plan will offer substantially all employees the right to
acquire a specific number of Reynolds Class A common shares at a fixed price for
a term of ten years. Non qualified stock options will be awarded as of October 1
each year. The dollar value of stock options awarded to each employee will be
equal to ten percent of salary. The option price will be equal to the fair
market value of Reynolds Class A common shares as of the date of grant.
(5) CASH FLOW STATEMENTS
Reconciliation of net income to net cash provided by operating activities.
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
INFORMATION SYSTEMS
Net Income $ 62,250 $ 52,223
Depreciation and Amortization 32,097 26,623
Deferred Income Taxes (3,110) (851)
Deferred Income Taxes Transferred to Financial Services 225 7,097
Gains on Sales of Assets (2,909) (653)
Changes in Operating Assets and Liabilities
Accounts receivable (19,716) (10,441)
Inventories 9,820 2,990
Prepaid expenses and other current assets (3,870) (504)
Intangible and other assets (1,313) (7,233)
Accounts payable (2,300) (3,681)
Accrued liabilities 2,366 10,315
Other liabilities 1,770 1,230
-------- --------
Net Cash Provided by Operating Activities $ 75,310 $ 77,115
======== ========
FINANCIAL SERVICES
Net Income $ 6,402 $ 5,856
Deferred Income Taxes 3,482 11,425
Deferred Income Taxes Transferred from Information Systems (225) (7,097)
Changes in Receivables, Other Assets and Other Liabilities 975 (142)
-------- --------
Net Cash Provided by Operating Activities $ 10,634 $ 10,042
======== ========
</TABLE>
(6) CONTINGENCIES
The U.S. Environmental Protection Agency (EPA) has designated the company as one
of a number of potentially responsible parties (PRP) under the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA) at four
environmental remediation sites. The EPA has contended that any company linked
to a CERCLA site is potentially liable for all response costs under the legal
doctrine of joint and several liability.
7
<PAGE> 8
The first site relates to a privately owned and operated solid waste disposal
facility. The EPA has issued a record of decision mandating certain remediation
activities. The company has shared costs with other PRPs for the remedial
investigation and feasibility study of the site.
The second site involves a municipal waste disposal facility owned and operated
by four municipalities. The company joined a PRP coalition and is sharing
remedial investigation and feasibility study costs with other PRPs. During the
quarter ended June 30, 1994, the PRP coalition received an engineering
evaluation/cost analysis of the presumed remedy for the site from its private
contractor. However, because the EPA has not yet selected a remedy, potential
remediation costs remain uncertain. Remediation costs for a typical CERCLA site
on the National Priorities List average about $30,000. The engineering
evaluation/cost analysis was consistent with this average.
In January 1994, by means of a special notice letter, the EPA notified the
company that it was considered to be one of more than three hundred PRPs at a
former drum reconditioning facility. A remedial investigation and feasibility
study is complete. A record of decision has been issued, and a statement of work
for the remedial design and remedial action is in circulation. The company was
unable to substantiate any previous involvement with this facility.
In connection with the acquisition of Duplex, the company became involved in one
additional environmental remediation site. In 1994 Duplex was named a PRP as one
of several thousand users of a solid waste landfill. At June 30, 1996 potential
remediation costs are uncertain.
The company has accrued its estimated share of response costs for all four
environmental remediation sites as of June 30, 1996 and believes that the
reasonably foreseeable resolution will not have a material adverse effect on the
financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 1996
AND 1995 (Dollars in thousands except per share data)
BUSINESS COMBINATION
On April 22, 1996 the company announced a cash tender offer to acquire the
outstanding shares of Duplex Products Inc. (Duplex) for $12 per share. On May
20, 1996 the company purchased the tendered shares of Duplex for a total
purchase price of $89.8 million. Duplex, headquartered in Sycamore, Illinois,
provides business forms and labels, electronic printing and mailing services,
document management programs, forms automation solutions and process analysis to
customers throughout the United States. In 1995 Duplex reported annual sales of
$275 million. At the time of the acquisition Duplex annual sales rate was about
$230 million per year. The company expects Duplex sales to decline further to
about $200 million as the business is integrated with existing operations and
sales of lower margin products are deemphasized. During the period May 20, 1996
through June 30, 1996 Duplex operations contributed $.01 per share to the
company's earnings.
FACILITY SALE
During the third quarter of 1996 the company sold its North Hollywood,
California, printing facility and will consolidate operations into its Phoenix
facility. This transaction resulted in a gain of $1.5 million, net of expenses
associated with closing the facility and moving operations. This gain was
reported as a reduction of cost of sales in the statement of consolidated
income. The operating income effect of this gain was substantially offset by $.8
million of Canadian reorganization expenses and other SG&A expenses.
8
<PAGE> 9
RESULTS OF OPERATIONS
CONSOLIDATED SUMMARY
<TABLE>
<CAPTION>
Third Quarter Nine Months
-------------------------------------- ---------------------------------------
1996 1995 Change % Change 1996 1995 Change % Change
-------- -------- ------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $287,049 $231,198 $55,851 24% $777,420 $668,415 $109,005 16%
Gross profits $133,821 $105,233 $28,588 27% $365,136 $303,821 $ 61,315 20%
Operating income $ 43,228 $ 34,430 $ 8,798 26% $120,583 $100,912 $ 19,671 19%
Net income $ 24,308 $ 19,860 $ 4,448 22% $ 68,652 $ 58,079 $ 10,573 18%
Earnings per share $ 0.57 $ 0.47 $ 0.10 21% $ 1.61 $ 1.37 $ 0.24 18%
</TABLE>
Consolidated revenues for the third quarter were the highest for any quarter in
the company's history. Business forms, computer systems and financial services
all posted double digit percentage sales increases over last year, for both the
quarter and nine months. Business combinations from 1995 and 1996 increased
consolidated revenues about $42 million in the third quarter and $71 million for
nine months.
Consolidated gross profit increased to 47.7% of information systems revenues in
the third quarter, compared to 46.7% last year. Year-to-date gross profit was
48.2% of information systems sales, versus 46.6% last year. Computer systems
gross profit percentage increased for both the third quarter and nine months.
Business forms' gross profit margin rose over last year through nine months, but
remained flat for the third quarter. Business forms third quarter gross profit
margin included the effect of Duplex lower profit margins which was partially
offset by the gain on the sale of the North Hollywood printing facility.
Selling, general and administrative expenses increased to 33.6% of revenues in
the third quarter from 32.9% last year and to 33.7% year-to-date from 32.6% a
year ago. The increase over last year resulted primarily from investments in the
newer computer systems businesses and products, the Canadian reorganization and
acquisition integration expenses.
Third quarter's consolidated operating income was also the highest for any
quarter in the company's history. Business forms operating income increased 32%
while computer systems' grew 22% and financial services rose 9% as compared to
last year's third quarter. Year-to-date operating income grew 39% for business
forms, 10% for financial services and 4% for computer systems.
Annualized return on average shareholders' equity was 25%, slightly higher than
last year's.
COMPUTER SYSTEMS (excluding financial services)
<TABLE>
<CAPTION>
Third Quarter Nine Months
------------------------------------------ ---------------------------------------
1996 1995 Change % Change 1996 1995 Change % Change
------ ------ -------- -------- ------- ------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $121,843 $103,997 $17,846 17% $349,396 $308,542 $40,854 13%
Gross profit $ 59,589 $ 48,504 $11,085 23% $171,258 $144,557 $26,701 18%
% of revenues 48.9% 46.6% 49.0% 46.9%
Operating income $ 17,412 $ 14,258 $ 3,154 22% $ 50,578 $ 48,529 $ 2,049 4%
% of revenues 14.3% 13.7% 14.5% 15.7%
</TABLE>
Computer systems revenues grew for both the third quarter and nine months
because of higher recurring service revenues, growing sales of newer products
and the effect of fiscal year 1995 acquisitions. Higher electronic parts catalog
sales also contributed to the year-to-date revenue increase. Recurring service
revenues continued to grow because of the increased number of software
applications supported. Sales of newer products and services such as Customer
Marketing Services, SalesVision, consulting services and a document management
system continued to grow. Business combinations contributed about $2 million of
the segment's sales growth in the third quarter and $12 million year-to-date.
Computer systems operating income grew over last year because of the sales
growth and gross profit margin improvement which offset higher SG&A expenses.
Gross profit margins increased for both the quarter and nine months primarily
because of growth of higher margin recurring service revenues. SG&A expenses
increased in total and as a percent of sales
9
<PAGE> 10
because of investments in newer automotive products, Canadian reorganization
expenses and investments in healthcare systems. Healthcare systems operating
loss rose for both the third quarter and nine months because of higher SG&A
expenses from implementing sales, marketing and product development strategies
for future growth.
BUSINESS FORMS
<TABLE>
<CAPTION>
Third Quarter Nine Months
----------------------------------------- ---------------------------------------
1996 1995 Change % Change 1996 1995 Change % Change
-------- -------- ------- ------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $158,614 $121,330 $37,284 31% $408,732 $343,522 $65,210 19%
Gross profit $ 74,232 $ 56,729 $17,503 31% $193,878 $159,264 $34,614 22%
% of revenues 46.8% 46.8% 47.4% 46.4%
Operating income $ 22,095 $ 16,746 $ 5,349 32% $ 59,318 $ 42,643 $16,675 39%
% of revenues 13.9% 13.8% 14.5% 12.4%
</TABLE>
Business forms revenues rose for both the third quarter and nine months
primarily because of the effect of 1995 and 1996 business combinations which
contributed $40 million and $59 million of the sales increase for the quarter
and nine months, respectively. Sales price pressures brought on by declining
paper costs have partially offset the volume gains from acquisitions and new
accounts.
Gross profit margins declined from 47.5% in the second quarter to 46.8% in the
third quarter primarily because of lower gross profit margins for Duplex,
acquired May 20, 1996. Partially offsetting the effect of Duplex lower gross
profit margins was the net gain on the sale of the North Hollywood facility.
Excluding the effects of Duplex and North Hollywood, gross profit margins of 49%
for the third quarter and 48.2% for the nine months improved over last year
because of continuous improvement efforts in managing the sales mix, account
profitability and production efficiencies. Also contributing to higher gross
profit margins were lower paper costs which reduced LIFO inventory adjustments.
During 1996 paper costs have declined reversing much of the increase from 1995.
Business forms third quarter operating income grew significantly, primarily as a
result of higher sales. Year-to-date, operating income grew because of higher
sales, increased gross profit margins and lower SG&A expenses as a percentage of
sales. SG&A expenses declined as a percentage of sales from last year for both
the third quarter and nine months because of the effects of the business
combinations. The company is in the process of implementing steps to integrate
Duplex into the company's business forms organization. The company expects that
these steps will raise Duplex profit margins to those of the company's other
general business forms operations when the integration process is completed.
FINANCIAL SERVICES
<TABLE>
<CAPTION>
Third Quarter Nine Months
---------------------------------- ------------------------------------
1996 1995 Change % Change 1996 1995 Change % Change
------ ------ ------- -------- ------- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $6,592 $5,871 $721 12% $19,292 $16,351 $2,941 18%
Operating income $3,721 $3,426 $295 9% $10,687 $ 9,740 $ 947 10%
% of revenues 56.4% 58.4% 55.4% 59.6%
</TABLE>
Financial services revenues increased for the third quarter and nine months
because of interest earned on higher average finance receivables. Average
finance receivables increased 24% over last year because of strong computer
systems sales over the last twelve months. Interest income did not increase as
rapidly as finance receivables because interest rates on new receivables were
lower on average than interest rates on maturing receivables.
Financial services operating income increased at a slower rate than revenues in
the third quarter because of the effect of higher average borrowing costs. Bad
debt expenses were slightly higher than last year through nine months.
The company has entered into various interest rate management agreements to
limit interest rate exposure on financial services variable rate debt. It is
important to manage this interest rate exposure because the proceeds from these
borrowings were invested in fixed rate finance receivables. The company believes
that over time it has reduced interest expense by using interest rate management
agreements and variable rate debt instead of directly obtaining fixed rate debt.
10
<PAGE> 11
During the first nine months of fiscal year 1996 the company did not enter
into any new interest rate management agreements because current market
conditions made fixed rate debt more attractive.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Information systems strong cash flows from operating activities of $75,310
resulted primarily from information systems net income of $62,250. Capital
expenditures of $27,787 occurred in the normal course of business. During the
third quarter the company completed the acquisition of Duplex which accounted
for the majority of cash spent on business combinations and cash received from
new borrowings. The company paid cash dividends of $14,837 and repurchased
$16,666 of capital stock in the first nine months of the fiscal year. See the
shareholders' equity caption of this analysis for a further discussion of share
repurchases.
Financial services operating cash flows and collections on finance receivables
were invested in new finance receivables for the company's computer systems and
used to make scheduled debt repayments.
CAPITALIZATION
The company's ratio of total debt (total information systems debt) to
capitalization (total information systems debt plus shareholders' equity) was
21% at June 30, 1996 and 13.4% at September 30, 1995. The increase resulted from
borrowings to finance the Duplex transaction. Remaining credit available under
existing revolving credit agreements was $40,785 at June 30, 1996. In addition
to committed credit agreements, the company also has a variety of other
short-term credit lines available. The company expects to obtain new long-term
financing to permanently fund the Duplex purchase and retire the revolving
credit agreement borrowings. The company estimates that cash flow from
operations and cash available from existing credit agreements will be sufficient
to fund fiscal year 1996 normal operations. Capital expenditures in the ordinary
course of business are anticipated to be about $36 million in 1996.
SHAREHOLDERS' EQUITY
The company lists its Class A common shares on the New York Stock Exchange.
There is no principal market for the Class B common shares. The company also has
an authorized class of 60 million preferred shares with no par value. As of
August 12, 1996, no preferred shares were outstanding and there were no
agreements or commitments with respect to the sale or issuance of these shares.
Dividends are typically declared each November, February, May and August and
paid in January, April, June and September, respectively. Dividends per Class A
common share must be twenty times the dividends per Class B common share and all
dividend payments must be simultaneous. In August 1996, the board of directors
authorized a two-for-one common stock split payable September 17, 1996 to
shareholders of record as of September 3, 1996. The board also increased the
quarterly dividend 17% to $.14 per Class A common share ($.07 per share post
split). In November 1995, the company's board of directors raised the quarterly
dividend 20%. The company has increased cash dividends per share ten times since
1989 and paid dividends each year since the company's initial public offering in
1961.
The company has conducted an active share repurchase program during recent years
to provide increased returns to shareholders. During the first nine months of
fiscal year 1996, the company repurchased 450,000 Class A common shares for
$16,666, an average price of $37.03 per share. In July the company repurchased
an additional 90,400 Class A common shares at an average price of $44.92 per
share. As of July 31, 1996 the company could repurchase an additional 2,029,100
Class A common shares under existing board of directors' authorizations.
ENVIRONMENTAL MATTERS
See Note 6 to the Consolidated Financial Statements for a discussion of the
company's environmental contingencies.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
On June 3, 1996 the Company filed a report on Form
8-K regarding its purchase of Duplex Products Inc.
On August 2, 1996 that filing was amended to include
pro forma financial information.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE REYNOLDS AND REYNOLDS COMPANY
Date August 12, 1996 /s/ David R. Holmes
---------------- --------------------------------------
David R. Holmes
Chairman of the Board, President and
Chief Executive Officer
Date August 12, 1996 /s/ Dale L. Medford
---------------- --------------------------------------
Dale L. Medford
Vice President, Corporate Finance and
Chief Financial Officer
13
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