<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 MARCH 31, 1997
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 (I.R.S. Employer Identification No.)
of 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 May 13, 1997, 80,324,102 Class A common shares and 20,000,000 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 Six Months Ended March 31, 1997 and 1996 3
Condensed Consolidated Balance Sheets
As of March 31, 1997 and September 30, 1996 4
Condensed Statements of Consolidated Cash Flows
For the Six Months Ended March 31, 1997 and 1996 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 Six Months Ended March 31, 1997 and 1996 8
PART II. OTHER INFORMATION
Item 4. Results of Votes of Security Holders 12
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 SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
------------------------- ----------------------------
1997 1996 1997 1996
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net Sales and Revenues
Information systems
Products $254,577 $173,180 $474,914 $324,725
Services 92,100 77,358 178,946 152,946
-------- -------- -------- --------
Total information systems 346,677 250,538 653,860 477,671
Financial services 7,525 6,466 14,649 12,700
-------- -------- -------- --------
Total net sales and revenues 354,202 257,004 668,509 490,371
-------- -------- -------- --------
Costs and Expenses
Information systems
Cost of sales
Products 154,265 98,849 284,118 185,803
Services 35,988 31,761 68,987 60,553
-------- -------- -------- --------
Total cost of sales 190,253 130,610 353,105 246,356
Selling, general and administrative expenses 113,689 83,439 216,006 160,926
Financial services 3,612 2,872 6,997 5,734
-------- -------- -------- --------
Total costs and expenses 307,554 216,921 576,108 413,016
-------- -------- -------- --------
Operating Income 46,648 40,083 92,401 77,355
-------- -------- -------- --------
Other Charges (Income)
Interest expense 2,708 941 4,357 1,959
Interest income (822 (326) (1,235) (986)
Other (387 (463) (675) (738)
-------- -------- -------- --------
Total other charges 1,499 152 2,447 235
-------- -------- -------- --------
Income Before Income Taxes 45,149 39,931 89,954 77,120
Provision For Income Taxes 18,882 16,973 38,187 32,776
-------- -------- -------- --------
Net Income $ 26,267 $ 22,958 $ 51,767 $ 44,344
======== ======== ======== ========
Earnings Per Common Share $ 0.31 $ 0.27 $ 0.61 $ 0.52
======== ======== ======== ========
Average Number of Common Shares Outstanding 85,150 84,870 85,094 85,127
======== ======== ======== ========
Cash Dividends Declared Per Common Share $ 0.08 $ 0.06 $ 0.16 $ 0.12
======== ======== ======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
THE REYNOLDS AND REYNOLDS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1997 AND SEPTEMBER 30, 1996
(In thousands)
<TABLE>
<CAPTION>
3/31/97 9/30/96
--------- --------
<S> <C> <C>
INFORMATION SYSTEMS ASSETS
Current Assets
Cash and equivalents $49,389 $11,130
Accounts receivable 181,431 161,278
Inventories 56,244 53,202
Other current assets 48,317 45,473
---------- --------
Total current assets 335,381 271,083
Property, Plant and Equipment, less accumulated depreciation of
$187,408 at 3/31/97 and $173,587 at 9/30/96 185,266 167,667
Goodwill 102,092 94,969
Other Intangible Assets 31,563 25,784
Other Assets 43,702 50,859
---------- --------
Total Information Systems Assets 698,004 610,362
---------- --------
FINANCIAL SERVICES ASSETS
Finance Receivables 343,216 311,576
Cash and Other Assets 1,270 1,706
---------- --------
Total Financial Services Assets 344,486 313,282
---------- --------
Total Assets $1,042,490 $923,644
========== ========
INFORMATION SYSTEMS LIABILITIES
Current Liabilities $166,832 $167,278
Long-Term Debt 134,752 84,601
Other Liabilities 68,883 63,216
---------- --------
Total Information Systems Liabilities 370,467 315,095
---------- --------
FINANCIAL SERVICES LIABILITIES
Notes Payable 184,665 161,911
Other Liabilities 81,018 73,643
---------- --------
Total Financial Services Liabilities 265,683 235,554
---------- --------
SHAREHOLDERS' EQUITY
Capital Stock 53,824 51,226
Other Adjustments (6,477) (6,203)
Retained Earnings 358,993 327,972
---------- --------
Total Shareholders' Equity 406,340 372,995
---------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,042,490 $923,644
========== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
THE REYNOLDS AND REYNOLDS COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(In thousands)
<TABLE>
<CAPTION>
1997 1996
-------- ---------
<S> <C> <C>
INFORMATION SYSTEMS
Cash Flows Provided By Operating Activities $76,891 $43,806
-------- --------
Cash Flows Provided By (Used For) Investing Activities
Business combinations (54,634) (10,318)
Capital expenditures (21,277) (19,251)
Net proceeds from asset sales 9,027 1,223
Capitalization of software licensed to customers (970) (2,486)
Repayments from (advances to) financial services 2,009 (1,802)
-------- --------
Net cash flows used for investing activities (65,845) (32,634)
-------- --------
Cash Flows Provided By (Used For) Financing Activities
Additional borrowings 99,510
Principal payments on debt (58,106) (1,834)
Cash dividends paid (6,567) (4,955)
Capital stock issued 1,400 707
Capital stock repurchased (8,750) (16,666)
-------- --------
Net cash flows provided by (used for) financing activities 27,487 (22,748)
-------- --------
Effect of Exchange Rate Changes on Cash (274) (233)
-------- --------
Increase (Decrease) in Cash and Equivalents 38,259 (11,809)
Cash and Equivalents, Beginning of Period 11,130 18,366
-------- --------
Cash and Equivalents, End of Period $49,389 $6,557
======== ========
FINANCIAL SERVICES
Cash Flows Provided By Operating Activities $9,815 $8,167
-------- --------
Cash Flows Provided By (Used For) Investing Activities
Finance receivables originated (75,540) (58,147)
Collections on finance receivables 44,655 36,628
-------- --------
Net cash flows used for investing activities (30,885) (21,519)
-------- --------
Cash Flows Provided By (Used For) Financing Activities
Additional borrowings 47,125 29,950
Principal payments on debt (24,371) (19,063)
Advances from (repayments to) information systems (2,009) 1,802
-------- --------
Net cash flows provided by financing activities 20,745 12,689
-------- --------
Decrease in Cash and Equivalents (325) (663)
Cash and Equivalents, Beginning of Period 1,293 663
-------- --------
Cash and Equivalents, End of Period $968 $0
======== ========
</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, 1996, 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>
1997 1996
--------------- ---------------
<S> <C> <C>
Finished products $45,656 $42,953
Work in process 2,827 3,788
Raw materials and supplies 7,761 6,461
--------------- ---------------
Total inventories $56,244 $53,202
=============== ===============
</TABLE>
3) BUSINESS COMBINATIONS
Effective December 31, 1996, the company purchased substantially all net assets
of Vanier Graphics Corporation from American Business Products for about
$47,000, subject to finalization of the purchase price. Vanier, a provider of
business forms and related forms management and workflow analysis services, had
1996 sales of about $130,000. The purchase price was paid in cash using proceeds
from the Company's issuance of notes in a public offering. This business
combination was accounted for as a purchase. The total purchase price was
preliminarily allocated to the assets and liabilities of the acquired company.
Estimated goodwill recorded in accounting for the Vanier transaction is being
amortized on a straight-line basis over fifteen years. Recorded liabilities
included the costs to exit duplicate manufacturing facilities of Vanier. These
liabilities included the cost of closing four Vanier manufacturing plants,
twelve distribution facilities and an administrative building. At March 31, 1997
the company had closed one manufacturing plant and eight distribution
facilities. As of December 31, 1996 key elements of the costs accrued for
exiting duplicate facilities were involuntary termination benefits of $2,125 and
lease costs of $700. Involuntary termination benefits represent severance
payments and outplacement services for 201 employees, comprised principally of
manufacturing employees. Through March 31, 1997, $262 of involuntary termination
benefits were paid to 31 employees and $12 of lease costs were paid. The company
recorded the assets of the duplicate Vanier facilities as current assets held
for sale. At December 31, 1996, these assets of $2,700 were recorded at
estimated fair market value less disposal costs. At March 31, 1997, $1,865 of
these assets had been sold.
During March 1997 the company completed the purchase of a small healthcare
systems company with electronic medical records and clinical management
capabilities. The purchase price of about $7,500 was preliminarily allocated to
the assets acquired and liabilities assumed pending the outcome of an appraisal.
It is estimated that no goodwill will be recorded for this transaction.
In fiscal year 1996, the company purchased Duplex Products Inc. and recorded
liabilities for the costs to exit duplicate manufacturing, distribution and
administrative facilities of Duplex. These liabilities included the cost of
closing seven Duplex manufacturing plants, five distribution facilities and an
administrative building. At March 31, 1997 the company had closed six of the
manufacturing plants, three distribution facilities and the administrative
building. 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 March 31, 1997, $4,877
of involuntary termination benefits were paid to 340 employees and $638 of
relocation costs and $178 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 estimated fair market
value less disposal costs. At March 31, 1997, $9,293 of these assets had been
sold.
6
<PAGE> 7
(4) FINANCING ARRANGEMENTS
In December 1996, the company received proceeds of $99,510 in connection with
the issuance of $100,000 of notes in a public offering. Interest on the notes is
payable each June and December at an annual interest rate of 7%. Principal is
due at the end of the ten year life of the notes. The proceeds were used to
retire debt incurred in the purchase of Duplex Products and to fund the purchase
of Vanier Graphics.
(5) CASH FLOW STATEMENTS
Reconciliation of net income to net cash provided by operating activities.
<TABLE>
<CAPTION>
1997 1996
-------------- ---------------
<S> <C> <C>
INFORMATION SYSTEMS
Net Income $47,179 $40,170
Depreciation and Amortization 25,482 20,657
Deferred Income Taxes 2,485 (3,463)
Deferred Income Taxes Transferred to Financial Services 3,273 555
Losses on Sales of Assets (240) (56)
Changes in Operating Assets and Liabilities
Accounts receivable (2,240) (2,749)
Inventories 6,781 2,417
Prepaid expenses and other current assets (6,958) (3,581)
Intangible and other assets 5,295 (4,365)
Accounts payable (2,942) 832
Accrued liabilities (6,052) (7,976)
Other liabilities 4,828 1,365
-------------- ---------------
Net Cash Provided by Operating Activities $76,891 $43,806
============== ===============
FINANCIAL SERVICES
Net Income $4,588 $4,174
Deferred Income Taxes 6,818 2,754
Deferred Income Taxes Transferred from Information Systems (3,273) (555)
Changes in Receivables, Other Assets and Other Liabilities 1,682 1,794
-------------- ---------------
Net Cash Provided by Operating Activities $9,815 $8,167
============== ===============
</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.
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.
7
<PAGE> 8
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. 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 March 31, 1997 potential
remediation costs are uncertain.
The company has accrued its estimated share of response costs for environmental
remediation sites as of March 31, 1997 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
THE REYNOLDS AND REYNOLDS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
FOR THE THREE AND SIX MONTHS ENDED MARCH 31, 1997 AND 1996
(Dollars in thousands except per share data)
BUSINESS COMBINATIONS
During 1997 and 1996 the company purchased two large business forms and forms
management companies. Effective December 31, 1996 the company purchased
substantially all net assets of Vanier Graphics Corporation from American
Business Products. On May 20, 1996 the company purchased the stock of Duplex
Products Inc. in a cash tender offer. The company expects to retain about
$100,000 of sales from Vanier and about $200,000 of sales from Duplex. These
businesses were purchased at favorable prices because these businesses had not
performed at optimum levels in recent years. The addition of these businesses to
the company's own business forms and forms management offerings reduced gross
profit percentages and operating margins because of the lower earnings these
businesses were generating. As these businesses are successfully integrated into
existing operations margins should improve to the level of the company's other
general business forms and forms management offerings.
RESULTS OF OPERATIONS
CONSOLIDATED SUMMARY
<TABLE>
<CAPTION>
Second Quarter Six Months
--------------------------------------- -----------------------------------------
1997 1996 Change % Change 1997 1996 Change % Change
-------- -------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $354,202 $257,004 $97,198 38% $668,509 $490,371 $178,138 36%
Gross profit $156,424 $119,928 $36,496 30% $300,755 $231,315 $69,440 30%
Operating income $46,648 $40,083 $6,565 16% $92,401 $77,355 $15,046 19%
Net income $26,267 $22,958 $3,309 14% $51,767 $44,344 $7,423 17%
Earnings per share $0.31 $0.27 $0.04 15% $0.61 $0.52 $0.09 17%
</TABLE>
Consolidated revenues increased significantly over last year in both the second
quarter and six months. About $81,000 of the second quarter's sales growth and
$138,000 of the year-to-date sales increase was the result of the 1997 purchase
of
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<PAGE> 9
Vanier Graphics and the 1996 acquisitions of Duplex Products. The balance of
the revenue increase came from growth in computer systems, forms management and
financial services.
The consolidated gross profit percentage was 45.1% of information systems
revenues in the second quarter, compared to 47.9% last year. Through six months
the consolidated gross profit margin was 46.0% versus 48.4% a year ago. The
decline in gross profit percentages resulted almost entirely from the lower
margin business forms products acquired in the Vanier and Duplex business
combinations. These forms management and general printing businesses have lower
margins than the company's automotive forms and computer systems businesses.
Over time, as the newly acquired businesses are fully integrated with existing
operations, the gross profit margins of the acquired businesses should improve
to the same 35% - 40% level as the company's other forms management and general
printing businesses. Computer systems gross profit percentage was nearly the
same as last year for both the second quarter and six months.
Selling, general and administrative (SG&A) expenses declined to 32.8% of
revenues in the second quarter from 33.3% last year. Year-to-date SG&A expenses
were 33.0% of sales, compared to 33.7% last year. SG&A expenses declined as a
percentage of sales for both business forms and computer systems. Business forms
SG&A percentage fell primarily as a result of the business combinations and the
integration of acquired businesses. Computer systems SG&A expenses declined in
spite of the continued investment in healthcare systems.
The consolidated operating income percentage was 13.2% of revenues in the second
quarter, compared to 15.6% last year. Through six months the consolidated
operating margin was 13.8% versus 15.8% a year ago. The decline in operating
profit percentages resulted primarily from the lower operating margins of the
Vanier and Duplex. These forms management and general printing businesses have
lower margins than the company's automotive forms and computer systems
businesses. Over time, as the newly acquired businesses are fully integrated
with existing operations, the operating income margins of the acquired
businesses should improve to the 10% range, consistent with the company's other
forms management and general printing businesses.
The company adjusted its effective income tax rate in the second quarter to
better reflect its estimated annual effective rate. Through six months the
effective income tax rate was 42.5%, compared to 42.2% for the twelve months of
fiscal year 1996.
Annualized return on average shareholders' equity was 25.3%, compared to 24.7%
at March 31, 1996.
COMPUTER SYSTEMS (excluding financial services)
<TABLE>
<CAPTION>
Second Quarter Six Months
---------------------------------------- ----------------------------------------
1997 1996 Change % Change 1997 1996 Change % Change
-------- -------- ------- -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $135,049 $117,086 $17,963 15% $261,461 $227,553 $33,908 15%
Gross profit $65,900 $56,564 $9,336 17% $127,338 $111,669 $15,669 14%
% of revenues 48.8% 48.3% 48.7% 49.1%
Operating income $19,814 $16,532 $3,282 20% $37,843 $33,166 $4,677 14%
% of revenues 14.7% 14.1% 14.5% 14.6%
</TABLE>
Computer systems revenues grew for the second quarter and six months primarily
because of higher recurring service revenues and growing sales of newer products
in the automotive businesses. Recurring service revenues continued to grow,
primarily because of the increased number of ERA software applications
supported. Sales of newer products and services such as SalesVision, the
SalesVision Vehicle Kiosk, Customer Marketing Services, laser solutions and a
document management system provided about 25% of the sales growth. Healthcare
systems sales represented a double digit percentage increase over last year for
both the second quarter and six months. Business combinations, primarily
electronic forms systems acquired as part of the purchase of Vanier Graphics,
contributed about $3,000 of sales in the quarter.
Computer systems gross profit and operating income grew consistent with the
sales growth . The slight fluctuations in gross profit percentages resulted from
variations in healthcare systems margins as automotive gross profit margins
remained stable. SG&A expenses grew slightly slower than revenues in both the
quarter and six months. Healthcare systems continued to operate at a loss
because of continued investments in the organization's products and
capabilities.
9
<PAGE> 10
BUSINESS FORMS
<TABLE>
<CAPTION>
Second Quarter Six Months
---------------------------------------- ----------------------------------------
1997 1996 Change % Change 1997 1996 Change % Change
-------- -------- ------- -------- ------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $211,628 $133,452 $78,176 59% $392,399 $250,118 $142,281 57%
Gross profit $90,524 $63,364 $27,160 43% $173,417 $119,646 $53,771 45%
% of revenues 42.8% 47.5% 44.2% 47.8%
Operating income $22,921 $19,957 $2,964 15% $46,906 $37,223 $9,683 26%
% of revenues 10.8% 15.0% 12.0% 14.9%
</TABLE>
Business forms revenues rose for the second quarter and six months primarily
because of 1997 and 1996 business combinations which contributed about $77,000
of the second quarter revenue growth and $134,000 of the year-to-date sales
increase. In the second quarter forms management revenues increased over last
year excluding the effect of business combinations. However this increase was
substantially offset by lower sales of non-forms management products and
automotive forms. Year-to-date forms management revenues grew more than 10% over
last year. Automotive forms also increased over last year through six months.
These sales increases were partially reduced by declines in sales of non-forms
management products.
The decline in the gross profit percentage from last year resulted from lower
gross profit margins of Vanier and Duplex, as previously discussed. Excluding
Vanier and Duplex, gross profit margins improved to 48.7% in the second quarter
and 48.9% year-to-date. The company's cost of paper was stable in the second
quarter and is expected to remain stable during the third quarter of fiscal year
1997.
Business forms operating income grew significantly, primarily as a result of
higher sales. SG&A expenses declined slightly as a percentage of sales because
of the Vanier and Duplex business combinations. These businesses have lower SG&A
expenses, as a percentage of sales, than the company's other businesses. The
decline in the operating income percentage from last year resulted from lower
operating income margins of Vanier and Duplex. Once the integration process is
completed, Vanier and Duplex operating income margins should improve to about
10%, consistent with the company's existing forms management and general
printing businesses.
FINANCIAL SERVICES
<TABLE>
<CAPTION>
Second Quarter Six Months
----------------------------------------- ----------------------------------------
1997 1996 Change % Change 1997 1996 Change % Change
------- ------- ------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $7,525 $6,466 $1,059 16% $14,649 $12,700 $1,949 15%
Operating income $3,913 $3,594 $319 9% $7,652 $6,966 $686 10%
% of revenues 52.0% 55.6% 52.2% 54.9%
</TABLE>
Average finance receivables increased 19% over last year because of growing
computer systems sales financed by the company. Financial services revenues grew
because of interest earned on the higher receivable balances. Revenues grew
slightly slower than the receivable balances because other non interest income
declined slightly.
Financial services operating income grew solidly because of higher revenues and
a slight decline in interest rates on borrowings. The operating income
percentage declined slightly because of the reduced other income and slightly
higher bad debt expenses.
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 the first six months of fiscal year 1997 the company did not enter into
any new interest rate management agreements because current market conditions
made fixed rate debt more attractive.
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<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Information systems continued to provide strong cash flows from operating
activities. Through the first six months of fiscal year 1997 operating cash flow
was $76,891 compared to $43,806 last year. Fiscal year 1997's cash flow resulted
primarily from information systems net income, adjusted for non-cash charges.
This strong cash flow funded the company's investments for normal operations
including capital expenditures of $21,277. About sixty percent of the capital
expenditures related to business forms operations with the balance related to
computer systems. Fiscal year 1997 capital expenditures in the ordinary course
of business are anticipated to be about $45,000 to $50,000. Please read the
Shareholders' Equity section regarding the payment of dividends and share
repurchases.
The first quarter purchase of Vanier Graphics accounted for the majority of cash
spent on business combinations. The balance related to the second quarter
purchase of a small healthcare systems company with electronic medical records
and clinical management capabilities. Please read the capitalization section of
this report regarding the financing of these business combinations.
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
25.9% at March 31, 1997 and 21.0% at September 30, 1996. The increase reflects
the issuance of $100,000 of notes in a public offering and the retirement of
outstanding debt issued to initially finance the Duplex transaction. The balance
of the proceeds was used to finance 1997 business combinations including Vanier.
Remaining credit available under existing revolving credit agreements was
$39,375 at March 31, 1997. This amount declined from December 1996 as credit
lines were phased down subsequent to the public debt offering. 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 1997 normal operations.
Financial services' debt balances increased $22,754 during the first six months
of fiscal year 1997. Proceeds were used for new finance receivables which
increased $31,640 year-to-date. The company structures debt maturities to
approximate the maturities of finance receivables. The company expects finance
receivables to continue to increase because of growth in computer systems sales.
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 May
13, 1997, 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 November 1996, the company's board of
directors raised the quarterly dividend 14% to $.08 per Class A common share.
The company has increased cash dividends per share eleven 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 half of fiscal
year 1997, the company repurchased 319,200 Class A common shares for $8,750, an
average price of $27.41 per share. As of March 31, 1997 the company could
repurchase an additional 3,219,800 Class A common shares under existing board of
directors' authorizations. After March 31, 1997 and through May 13, 1997 the
company purchased 697,200 Class A common shares at an average price of $20.55
per share.
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 4. RESULTS OF VOTES OF SECURITY HOLDERS
At the Annual Meeting of Shareholders on February 13, 1997, the
shareholders of the company voted on and approved the following
issues.
Issue 1 Election of Directors
Shares
Shares For Withheld
---------- --------
Three-year terms expiring in 2000
---------------------------------
Cleve L. Killingsworth, Jr. 91,939,718 270,488
Dale L. Medford 91,987,643 222,563
Gayle B. Price, Jr. 90,867,209 1,342,997
Kenneth W. Thiele 90,787,858 1,422,348
One-year term expiring in 1998
------------------------------
Robert C. Nevin 91,977,366 232,840
The following individuals' terms of office as directors continued
after the meeting; Joseph N. Bausman, Dr. David E. Fry, Richard H.
Grant, Jr., Richard H. Grant, III, David R. Holmes, Allan Z. Loren,
Martin D. Walker
Issue 2 Proposal to Increase the Number of Authorized Class A and
Class B Common Shares
Shares For 86,802,777
Shares Against 5,140,467
Shares Abstain 266,962
Issue 3 Proposal to Reclassify Common Shares to "No Par Value" Shares
Class A Proposal Class B Proposal
Shares For 70,047,596 Shares For 20,000,000
Shares Against 1,530,348 Shares Against 0
Shares Abstain 632,266 Shares Abstain 0
Issue 4 Appointment of Deloitte & Touche LLP as Independent Auditors
Shares For 90,899,238
Shares Against 1,172,168
Shares Abstain 138,800
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
March 31, 1997.
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 May 13, 1997 /s/ David R. Holmes
------------ ---------------------------------------
David R. Holmes
Chairman of the Board, President and
Chief Executive Officer
Date May 13, 1997 /s/ Dale L. Medford
------------ ---------------------------------------
Dale L. Medford
Vice President, Corporate Finance and
Chief Financial Officer
13
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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