<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, 1998
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)
(937) 485-2000
--------------
(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 11, 1998, 78,519,408 Class A common shares and 20,000,000 Class B common
shares were outstanding.
<PAGE> 2
The Reynolds and Reynolds Company
Table of Contents
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Consolidated Income
For the Three and Six Months Ended March 31, 1998 and 1997 3
Condensed Consolidated Balance Sheets
As of March 31, 1998 and September 30, 1997 4
Condensed Statements of Consolidated Cash Flows
For the Six Months Ended March 31, 1998 and 1997 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, 1998 and 1997 9
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
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, 1998 AND 1997
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
---------------------------- ----------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales and Revenues
Information systems
Products $ 274,504 $ 254,577 $ 533,865 $ 474,914
Services 102,671 92,100 204,953 178,946
--------- --------- --------- ---------
Total information systems 377,175 346,677 738,818 653,860
Financial services 8,570 7,525 16,667 14,649
--------- --------- --------- ---------
Total net sales and revenues 385,745 354,202 755,485 668,509
--------- --------- --------- ---------
Costs and Expenses
Information systems
Cost of sales
Products 166,174 154,265 328,215 284,118
Services 42,015 35,988 81,102 68,987
--------- --------- --------- ---------
Total cost of sales 208,189 190,253 409,317 353,105
Selling, general and administrative expenses 123,129 113,689 241,280 216,006
Financial services 4,304 3,612 8,932 6,997
--------- --------- --------- ---------
Total costs and expenses 335,622 307,554 659,529 576,108
--------- --------- --------- ---------
Operating Income 50,123 46,648 95,956 92,401
--------- --------- --------- ---------
Other Charges (Income)
Interest expense 3,358 2,708 6,609 4,357
Interest income (650) (822) (975) (1,235)
Other 808 (387) 1,505 (675)
--------- --------- --------- ---------
Total other charges 3,516 1,499 7,139 2,447
--------- --------- --------- ---------
Income Before Income Taxes 46,607 45,149 88,817 89,954
Provision For Income Taxes 20,247 18,882 38,709 38,187
--------- --------- --------- ---------
Net Income $ 26,360 $ 26,267 $ 50,108 $ 51,767
========= ========= ========= =========
Basic Earnings Per Common Share $ 0.33 $ 0.32 $ 0.63 $ 0.63
========= ========= ========= =========
Diluted Earnings Per Common Share $ 0.32 $ 0.31 $ 0.61 $ 0.61
========= ========= ========= =========
Average Number of Common Shares Outstanding 79,796 82,156 79,821 82,079
========= ========= ========= =========
Average Number of Common Shares and
Common Share Equivalents Outstanding 81,757 85,193 81,699 85,116
========= ========= ========= =========
Cash Dividends Declared Per Common Share $ 0.09 $ 0.08 $ 0.18 $ 0.16
========= ========= ========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
THE REYNOLDS AND REYNOLDS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1998 AND SEPTEMBER 30, 1997
(In thousands)
<TABLE>
<CAPTION>
3/31/98 9/30/97
----------- -----------
<S> <C> <C>
INFORMATION SYSTEMS ASSETS
Current Assets
Cash and equivalents $ 31,967 $ 7,604
Accounts receivable 200,707 197,215
Inventories 75,022 75,645
Other current assets 46,083 47,463
----------- -----------
Total current assets 353,779 327,927
Property, Plant and Equipment, less accumulated depreciation of
$203,442 at 3/31/98 and $193,190 at 9/30/97 178,094 188,501
Goodwill 90,103 94,241
Other Intangible Assets 18,679 22,301
Other Assets 93,816 96,365
----------- -----------
Total Information Systems Assets 734,471 729,335
----------- -----------
FINANCIAL SERVICES ASSETS
Finance Receivables 386,118 372,073
Cash and Other Assets 1,259 1,102
----------- -----------
Total Financial Services Assets 387,377 373,175
----------- -----------
TOTAL ASSETS $ 1,121,848 $ 1,102,510
=========== ===========
INFORMATION SYSTEMS LIABILITIES
Current Liabilities $ 229,886 $ 208,579
Long-Term Debt 128,145 170,150
Other Liabilities 77,316 74,662
----------- -----------
Total Information Systems Liabilities 435,347 453,391
----------- -----------
FINANCIAL SERVICES LIABILITIES
Notes Payable 206,267 198,314
Other Liabilities 89,952 86,575
----------- -----------
TOTAL FINANCIAL SERVICES LIABILITIES 296,219 284,889
----------- -----------
Shareholders' Equity
Capital Stock 56,259 53,894
Other Adjustments (5,829) (5,481)
Retained Earnings 339,852 315,817
----------- -----------
Total Shareholders' Equity 390,282 364,230
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,121,848 $ 1,102,510
=========== ===========
</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, 1998 AND 1997
(In thousands)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
INFORMATION SYSTEMS
Cash Flows Provided By Operating Activities $ 71,941 $ 76,891
-------- --------
Cash Flows Provided By (Used For) Investing Activities
Business combinations (564) (54,634)
Capital expenditures (17,045) (21,277)
Net proceeds from asset sales 7,245 9,027
Capitalization of software licensed to customers (570) (970)
Repayments from (advances to) financial services (5,118) 2,009
-------- --------
Net cash flows used for investing activities (16,052) (65,845)
-------- --------
Cash Flows Provided By (Used For) Financing Activities
Additional borrowings 99,510
Principal payments on debt (12,051) (58,106)
Cash dividends paid (7,172) (6,567)
Capital stock issued 1,510 1,400
Capital stock repurchased (13,464) (8,750)
-------- --------
Net cash flows provided by (used for) financing activities (31,177) 27,487
-------- --------
Effect of Exchange Rate Changes on Cash (349) (274)
-------- --------
Increase in Cash and Equivalents 24,363 38,259
Cash and Equivalents, Beginning of Period 7,604 11,130
-------- --------
Cash and Equivalents, End of Period $ 31,967 $ 49,389
======== ========
FINANCIAL SERVICES
Cash Flows Provided By Operating Activities $ 10,171 $ 9,815
-------- --------
Cash Flows Provided By (Used For) Investing Activities
Finance receivables originated (74,629) (75,540)
Collections on finance receivables 51,335 44,655
-------- --------
Net cash flows used for investing activities (23,294) (30,885)
-------- --------
Cash Flows Provided By (Used For) Financing Activities
Additional borrowings 70,000 47,125
Principal payments on debt (62,040) (24,371)
Advances from (repayments to) information systems 5,118 (2,009)
-------- --------
Net cash flows provided by financing activities 13,078 20,745
-------- --------
Decrease in Cash and Equivalents (45) (325)
Cash and Equivalents, Beginning of Period 921 1,293
-------- --------
Cash and Equivalents, End of Period $ 876 $ 968
======== ========
</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, 1997, 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>
3/31/98 9/30/97
------ ------
<S> <C> <C>
Finished products $60,636 $59,683
Work in process 6,006 6,256
Raw materials and supplies 8,380 9,706
------- -------
Total inventories $75,022 $75,645
======= =======
</TABLE>
(3) EARNINGS PER SHARE
In February 1997 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) Statement No. 128, "Earnings
per Share." This statement, effective for interim and annual periods ending
after December 15, 1997, requires the company to present basic earnings per
share (EPS) and diluted EPS. Basic EPS is computed by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
EPS is computed by dividing net income by the weighted average number of common
shares and common share equivalents outstanding during the period. The company's
common share equivalents represent the effect of employee stock options. Prior
year earnings per share amounts have been restated to comply with this
pronouncement.
(4) RESTRUCTURING CHARGE
During the fourth quarter of fiscal year 1997 the company recorded a
restructuring charge. This charge included costs to close four manufacturing
plants and three distribution facilities. At March 31, 1998 the company had
closed all four of the manufacturing plants and all three of the distribution
facilities. Involuntary termination benefits of $9,699 were recorded for nearly
400 employees. Through March 31, 1998 substantially all identified positions had
been eliminated and $5,770 of involuntary termination benefits, representing
severance payments and outplacement services were paid. The balance of
involuntary termination benefits will be paid over the remaining severance
period.
(5) BUSINESS COMBINATIONS
The company purchased Fiscal Information Inc. in June 1997. In recording the
assets and liabilities of this business combination the company accrued the
costs to close duplicate facilities of Fiscal. These liabilities included the
costs to close a computer services center. At March 31, 1998, Fiscal's computer
services center has been closed. Key elements of the costs accrued for exiting
duplicate facilities were involuntary termination benefits of $398 and lease
costs of $654. Involuntary termination benefits represent severance payments and
outplacement services for 54 employees. Through March 31, 1998, all severance
benefits were paid and the company bought out its remaining lease obligation.
Costs paid approximated those accrued.
The company purchased Crain-Drummond Inc. in July 1997. In recording the assets
and liabilities of this business combination the company accrued the costs to
close duplicate facilities of Crain-Drummond. These liabilities included the
costs to close three manufacturing plants and three distribution facilities. At
March 31, 1998, none of the manufacturing plants or distribution facilities had
been closed. Key elements of the costs accrued for exiting duplicate facilities
were involuntary termination benefits of $1,981 and relocation costs of $218.
Involuntary termination benefits represent severance payments and outplacement
services for 181 employees, principally manufacturing employees. Through March
31, 1998, $604 of involuntary termination benefits were paid to 48 employees and
no relocation costs were paid. The company recorded the assets of the duplicate
facilities as current assets held for sale. These assets of $6,949 were recorded
at estimated fair market value less disposal costs. At March 31, 1998 none of
these assets had been sold.
6
<PAGE> 7
(6) ACCOUNTING STANDARDS
In June 1997 the FASB issued SFAS Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement, effective
for financial statements for fiscal years beginning after December 15, 1997,
requires that a public business enterprise report financial and descriptive
information about its reportable operating segments. Generally, financial
information is required to be reported on the basis that is used internally for
evaluating segment performance and deciding how to allocate resources to
segments.
Upon adoption of this pronouncement, the company's reportable operating segments
will be the Automotive Division, the Business Systems Division and the
Healthcare Systems Division. The company will also continue to present financial
services as a reportable operating segment. The Automotive Division provides
integrated computer systems products and services and business forms to
automobile dealers. The Business Systems Division manufactures and distributes
printed business forms and systems and provides forms management services to
general business markets. The Healthcare Systems Division provides integrated
computer systems products and services to both office-based and hospital-based
physicians.
The company has elected early compliance with this pronouncement effective
September 30, 1998. In the year of adoption, comparative interim financial
information is not required to be presented. This information must be
accumulated during the year of adoption so that comparative financial
information can be presented the following year. The company has chosen to
disclose this pro forma financial information as it is accumulated.
Selected pro forma financial information for the three months ended March 31,
1998.
<TABLE>
<CAPTION>
Net Sales and Gross Operating
Revenues Profit Income (Loss)
------------------------------------------------
<S> <C> <C> <C>
Automotive Division $180,967 $ 98,283 $40,375
Business Systems Division 184,117 66,130 13,018
Healthcare Systems Division 12,189 4,573 (3,647)
Financial Services 8,570 4,266
Elimination of Intersegment (98)
Sales
Unallocated Corporate Expenses (3,889)
------------------------------------------------
Totals $385,745 $168,986 $50,123
================================================
Selected pro forma financial information for the six months ended March 31, 1998.
</TABLE>
<TABLE>
<CAPTION>
Net Sales and Gross Operating
Revenues Profit Income (Loss)
---------------------------------------------
<S> <C> <C> <C>
Automotive Division $352,262 $192,476 $79,565
Business Systems Division 362,650 128,134 23,796
Healthcare Systems Division 24,111 8,891 (7,496)
Financial Services 16,667 7,735
Elimination of Intersegment (205)
Sales
Unallocated Corporate Expenses (7,644)
-------------------------------------------
Totals $755,485 $329,501 $95,956
===========================================
</TABLE>
In October 1997 the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 97-2, "Software Revenue Recognition," which
supersedes SOP 91-1, "Software Revenue Recognition." SOP 97-2 provides guidance
on applying generally accepted accounting principles in recognizing revenue on
software transactions. The new SOP will be effective for transactions entered
into in fiscal years beginning after December 15, 1997. The company has not
determined the effect that this pronouncement will have on its revenue
recognition practices.
7
<PAGE> 8
(7) CONTINGENCY
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 an
environmental remediation site. 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. This environmental remediation 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 fiscal year
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 fiscal year 1996, an agreement was reached whereby the
state of Connecticut will contribute $8,000 towards remediation costs. The
company believes that the reasonably foreseeable resolution will not have a
material adverse effect on the financial statements.
(8) CASH FLOW STATEMENTS
Reconciliation of net income to net cash provided by operating activities.
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
INFORMATION SYSTEMS
Net Income $ 45,495 $ 47,179
Depreciation and Amortization 27,880 25,482
Deferred Income Taxes 1,327 2,485
Deferred Income Taxes Transferred to Financial Services (657) 3,273
Losses (Gains) on Sales of Assets 11 (240)
Changes in Operating Assets and Liabilities
Accounts receivable 4,032 (2,240)
Inventories 711 6,781
Prepaid expenses and other current assets 161 (6,958)
Intangible and other assets 3,873 5,295
Accounts payable 2,115 (2,942)
Accrued liabilities (15,583) (6,052)
Other liabilities 2,576 4,828
------------- -------------
Net Cash Provided by Operating Activities $ 71,941 $ 76,891
============= =============
FINANCIAL SERVICES
Net Income 4,613 4,588
Deferred Income Taxes 2,964 6,818
Deferred Income Taxes Transferred from Information Systems 657 (3,273)
Changes in Receivables, Other Assets and Other Liabilities 1,937 1,682
------------- -------------
Net Cash Provided by Operating Activities $ 10,171 $ 9,815
============= =============
</TABLE>
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MARCH 31,
1998 AND 1997
(Dollars in thousands except per share data)
RESULTS OF OPERATIONS
CONSOLIDATED SUMMARY
<TABLE>
<CAPTION>
Second Quarter Six Months
------------------------------------------------ ------------------------------------------------
1998 1997 Change % Change 1998 1997 Change % Change
----------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $385,745 $354,202 $31,543 9% $755,485 $668,509 $86,976 13%
Gross profit $168,986 $156,424 $12,562 8% $329,501 $300,755 $28,746 10%
Operating income $50,123 $46,648 $3,475 7% $95,956 $92,401 $3,555 4%
Net income $20,360 $26,267 $93 0% $50,108 $51,767 ($1,659) -3%
Basic earnings per share $0.33 $0.32 $0.01 3% $0.63 $0.63 $0.00 0%
Diluted earnings per share $0.32 $0.31 $0.01 3% $0.61 $0.61 $0.00 0%
</TABLE>
Consolidated revenues increased over last year as a result of growth in
automotive computer systems revenues and sales from 1997 business combinations.
About $32,000 of the second quarter sales growth resulted from the 1997
acquisitions of Crain-Drummond and Fiscal Information. Second quarter sales
were negatively affected by lower sales of Vanier Graphics, primarily as a
result of the 1997 divestiture of Vanier's distributor business. About $85,000
of the year-to-date sales growth resulted from the 1997 acquisitions of
Crain-Drummond, Vanier Graphics and Fiscal Information.
The consolidated gross profit percentage was 44.8% of revenues (excluding
financial services revenues) in the second quarter and 44.6% year-to-date,
compared to 45.1% and 46.0% last year. Computer systems gross profit percentage
increased over last year because of the growth in automotive recurring service
revenues. Business forms gross profit percentage declined from last year,
reflecting the lower margin products acquired in the Crain-Drummond and Vanier
Graphics business combinations.
Consolidated operating income was 13.0% of revenues in the second quarter
compared to 13.2% last year and 12.4% in the first quarter of fiscal year 1998.
Business forms operating margins improved over the first quarter and nearly
equaled last year because of continued progress integrating business
combinations. Computer systems operating margins remained strong and were
essentially flat with last year.
Annualized return on average shareholders' equity was 25.4%, compared to 25.3%
at March 31, 1997.
COMPUTER SYSTEMS (excluding financial services)
<TABLE>
<CAPTION>
Second Quarter Six Months
---------------------------------------------------- ------------------------------------------------
1998 1997 Change % Change 1998 1997 Change % Change
----------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $148,219 $135,049 $ 13,170 10% $288,231 $261,461 $ 26,770 10%
Gross profit $ 73,211 $ 65,900 $ 7,311 11% $143,492 $127,338 $ 16,154 13%
% of revenues 49.4% 48.8% 49.8% 48.7%
SG&A expenses $ 51,519 $ 46,086 $ 5,433 12% $100,500 $ 89,495 $ 11,005 12%
% of revenues 34.8% 34.1% 34.9% 34.2%
Operating income $ 21,692 $ 19,814 $ 1,878 9% $ 42,992 $ 37,843 $ 5,149 14%
% of revenues 14.6% 14.7% 14.9% 14.5%
</TABLE>
Computer systems revenues grew for the second quarter and six months primarily
because of higher automotive recurring service revenues. Recurring service
revenues continued to grow, primarily because of the increased number of ERA
software applications supported. Healthcare Systems revenues increased for the
second quarter and year-to-date because of the 1997 acquisition of Fiscal
Information.
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<PAGE> 10
Computer systems gross profit grew at a greater rate than revenues because of
the strong growth of recurring service revenues. SG&A expenses increased because
of investments in products and capabilities in both the automotive and
healthcare businesses.
BUSINESS FORMS
<TABLE>
<CAPTION>
Second Quarter Six Months
--------------------------------------------------- ------------------------------------------------
1998 1997 Change % Change 1998 1997 Change % Change
----------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $228,956 $211,628 $ 17,328 8% $450,587 $392,399 $ 58,188 15%
Gross profit $ 95,775 $ 90,524 $ 5,251 6% $186,009 $173,417 $ 12,592 7%
% of revenues 41.8% 42.8% 41.3% 44.2%
SG&A expenses $ 71,610 $ 67,603 $ 4,007 6% $140,780 $126,511 $ 14,269 11%
% of revenues 31.2% 32.0% 31.3% 32.2%
Operating income $ 24,165 $ 22,921 $ 1,244 5% $ 45,229 $ 46,906 ($ 1,677) -4%
% of revenues 10.6% 10.8% 10.0% 12.0%
</TABLE>
Business forms revenues rose for the second quarter and six months because of
the 1997 Crain-Drummond and Vanier Graphics business combinations which
contributed about $29,000 to second quarter's sales growth and $78,000 to the
year-to-date sales increase. This sales growth was partially offset by a decline
in Vanier's sales because of the 1997 divestiture of Vanier's distributor
business. Since the divestiture, Vanier's quarterly sales have been essentially
flat.
The decline in gross profit margins from last year resulted primarily from lower
gross profit margins of Crain-Drummond. The company's cost of paper was stable
in the second quarter and is expected to remain relatively stable during the
third quarter of fiscal year 1998.
Business forms operating income exceeded last year for the second quarter, but
remained behind last year through six months. During the first six months of the
fiscal year the company closed four manufacturing plants and incurred relocation
and training expenses. These costs could not be accrued as part of the 1997
restructuring charge under existing accounting pronouncements. The company also
incurred acquisition integration expenses for Duplex Products, Vanier Graphics
and Crain-Drummond. These plant closing and integration expenses totaled about
$700 in the second quarter and $2,800 through six months. SG&A expenses declined
as a percentage of sales for both the quarter and six months primarily because
of the effects of the business combinations which provided revenue growth and
lower SG&A expenses as a percentage of sales. The company further reduced SG&A
expenses, as a percentage of revenues, by eliminating duplicate administrative
functions.
FINANCIAL SERVICES
<TABLE>
<CAPTION>
Second Quarter Six Months
------------------------------------------------ ------------------------------------------------
1998 1997 Change % Change 1998 1997 Change % Change
----------- ---------- ---------- ----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $8,570 $7,525 $1,045 14% $16,667 $14,649 $2,018 14%
Operating income $4,266 $3,913 $353 9% $7,735 $7,652 $83 1%
% of revenues 49.8% 52.0% 46.4% 52.2%
</TABLE>
Average finance receivables increased 16% over last year because of the
continued high level of new computer systems sales. Financial services revenues
grew because of interest earned on the higher receivables balances. Average
interest rates declined slightly as interest rates on new receivables were less
than those for maturing receivables.
Financial services interest rate spread remained strong, exceeding 3% during the
first six months of fiscal year 1998. This interest rate spread declined
slightly from last year because of slightly higher borrowing rates in addition
to the previously mentioned change in the receivables portfolio. Operating
income grew at a slower rate than revenues because of the reduced interest rate
spread and higher bad debt expenses recorded to maintain an adequate reserve for
the growing receivables portfolio.
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
10
<PAGE> 11
using interest rate management agreements and variable rate debt instead of
directly obtaining fixed rate debt. During the first six months of fiscal year
1998 the company did not enter into any new interest rate management agreements.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS
Information systems continued to provide strong cash flow from operating
activities during the first six months of the fiscal year. Operating cash flow
was $71,941 and resulted primarily from net income, adjusted for noncash
charges. Operating cash flow funded the company's investments for normal
operations including capital expenditures and capitalized software of $17,615.
Capital expenditures in the ordinary course of business are anticipated to be
about $40,000 to $45,000 in fiscal year 1998.
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
31.5% at March 31, 1998 and 34.5% at September 30, 1997. Remaining credit
available under existing revolving credit agreements was $135,000 at March 31,
1998. In addition to committed credit agreements, the company also has a variety
of other short-term credit lines available. The company anticipates that cash
flow from operations and cash available from existing credit agreements will be
sufficient to fund fiscal year 1998 normal operations.
During the second quarter of fiscal year 1998 the company issued $70,000 of
medium-term notes and repaid short-term borrowings of financial services. Debt
maturities ranged from one to four years and interest rates ranged from 5.875%
to 6.12%. This debt continues to be reported with financial services notes
payable.
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
11, 1998, 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 1997, the company's board of
directors raised the quarterly dividend 13% to $.09 per Class A common share.
The company has increased cash dividends per share twelve 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 second quarter of
fiscal year 1998, the company repurchased 200,000 Class A common shares for
$4,306 ($21.53 per share). During the first six months of fiscal year 1998, the
company repurchased 700,000 Class A common shares for $13,464 ($19.23 per
share). As of March 31, 1998 the company could repurchase an additional
2,469,800 Class A common shares under existing board of directors'
authorizations.
YEAR 2000 COMPLIANCE
The company has assessed potential year 2000 effects on its internal computer
systems and systems provided to customers. Detailed plans have been prepared to
address year 2000 issues with completion of software development scheduled for
December 1998. As of March 31, 1998 the costs to make all systems year 2000
compliant were not projected to have a material adverse effect on the company's
financial position, results of operations and cash flows.
ACCOUNTING STANDARDS
See Note 6 to the Consolidated Financial Statements for a discussion of
accounting pronouncements not yet adopted by the company.
11
<PAGE> 12
ENVIRONMENTAL MATTER
See Note 7 to the Consolidated Financial Statements for a discussion of an
environmental contingency.
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
<TABLE>
<CAPTION>
Shares
Shares For Withheld
---------- --------
Three-year terms expiring in 2001
---------------------------------
<S> <C> <C>
Richard H. Grant, Jr. 87,479,131 2,180,820
Allan Z. Loren 84,113,946 5,546,004
Philip A. Odeen 87,558,608 2,101,343
Donald K. Peterson 87,533,794 2,126,157
<CAPTION>
Two-year term expiring in 2000
------------------------------
<S> <C> <C>
James A. Arthur 88,124,277 1,535,674
</TABLE>
The following individuals' terms of office as directors
continued after the meeting; Dr. David E. Fry, Richard H.
Grant, III, David R. Holmes, Cleve L. Killingsworth, Jr., Dale
L. Medford, Gayle B. Price, Jr. and Martin D. Walker.
Issue 2 Appointment of Deloitte & Touche LLP as Independent
Auditors
<TABLE>
<S> <C>
Shares For 88,683,753
Shares Against 858,262
Shares Abstain 117,936
</TABLE>
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, 1998.
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 12, 1998 /s/ David R. Holmes
------------- -------------------
David R. Holmes
Chairman of the Board, President
and Chief Executive Officer
Date May 12, 1998 /s/ Dale L. Medford
------------- -------------------
Dale L. Medford
Vice President, Corporate
Finance and Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 31,967
<SECURITIES> 0
<RECEIVABLES> 208,110
<ALLOWANCES> 7,403
<INVENTORY> 75,022
<CURRENT-ASSETS> 353,779
<PP&E> 381,536
<DEPRECIATION> 203,442
<TOTAL-ASSETS> 1,121,848
<CURRENT-LIABILITIES> 229,886
<BONDS> 272,468
0
0
<COMMON> 56,259
<OTHER-SE> 334,023
<TOTAL-LIABILITY-AND-EQUITY> 1,121,848
<SALES> 533,865
<TOTAL-REVENUES> 755,485
<CGS> 328,215
<TOTAL-COSTS> 409,317
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,079
<INCOME-PRETAX> 88,817
<INCOME-TAX> 38,709
<INCOME-CONTINUING> 50,108
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,108
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.61
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 7,604
<SECURITIES> 0
<RECEIVABLES> 204,867
<ALLOWANCES> 7,652
<INVENTORY> 75,645
<CURRENT-ASSETS> 327,927
<PP&E> 381,691
<DEPRECIATION> 193,190
<TOTAL-ASSETS> 1,102,510
<CURRENT-LIABILITIES> 208,579
<BONDS> 307,605
0
0
<COMMON> 53,894
<OTHER-SE> 310,336
<TOTAL-LIABILITY-AND-EQUITY> 1,102,510
<SALES> 984,611
<TOTAL-REVENUES> 1,385,685
<CGS> 596,847
<TOTAL-COSTS> 746,367
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,856
<INCOME-PRETAX> 115,707
<INCOME-TAX> 56,488
<INCOME-CONTINUING> 59,219
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,219
<EPS-PRIMARY> 0.73
<EPS-DILUTED> 0.70
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 35,781
<SECURITIES> 0
<RECEIVABLES> 175,970
<ALLOWANCES> 5,409
<INVENTORY> 56,408
<CURRENT-ASSETS> 312,218
<PP&E> 370,942
<DEPRECIATION> 194,465
<TOTAL-ASSETS> 1,021,268
<CURRENT-LIABILITIES> 165,042
<BONDS> 268,700
0
0
<COMMON> 49,561
<OTHER-SE> 325,757
<TOTAL-LIABILITY-AND-EQUITY> 1,021,268
<SALES> 710,717
<TOTAL-REVENUES> 1,006,569
<CGS> 429,239
<TOTAL-COSTS> 538,828
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,470
<INCOME-PRETAX> 109,077
<INCOME-TAX> 50,032
<INCOME-CONTINUING> 59,045
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,045
<EPS-PRIMARY> 0.72
<EPS-DILUTED> 0.70
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> MAR-30-1997
<EXCHANGE-RATE> 1
<CASH> 49,389
<SECURITIES> 0
<RECEIVABLES> 187,719
<ALLOWANCES> 6,288
<INVENTORY> 56,244
<CURRENT-ASSETS> 335,381
<PP&E> 372,674
<DEPRECIATION> 187,408
<TOTAL-ASSETS> 1,042,490
<CURRENT-LIABILITIES> 166,832
<BONDS> 264,797
0
0
<COMMON> 53,824
<OTHER-SE> 352,516
<TOTAL-LIABILITY-AND-EQUITY> 1,042,490
<SALES> 474,914
<TOTAL-REVENUES> 668,509
<CGS> 284,118
<TOTAL-COSTS> 353,105
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,687
<INCOME-PRETAX> 89,954
<INCOME-TAX> 38,187
<INCOME-CONTINUING> 51,767
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,767
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.61
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 42,586
<SECURITIES> 0
<RECEIVABLES> 194,583
<ALLOWANCES> 6,430
<INVENTORY> 60,924
<CURRENT-ASSETS> 336,439
<PP&E> 365,927
<DEPRECIATION> 180,039
<TOTAL-ASSETS> 1,029,922
<CURRENT-LIABILITIES> 184,650
<BONDS> 260,745
0
0
<COMMON> 51,308
<OTHER-SE> 341,956
<TOTAL-LIABILITY-AND-EQUITY> 1,029,922
<SALES> 220,337
<TOTAL-REVENUES> 314,307
<CGS> 129,852
<TOTAL-COSTS> 162,852
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,203
<INCOME-PRETAX> 44,805
<INCOME-TAX> 19,305
<INCOME-CONTINUING> 25,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,500
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.30
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 11,130
<SECURITIES> 0
<RECEIVABLES> 167,022
<ALLOWANCES> 5,744
<INVENTORY> 53,202
<CURRENT-ASSETS> 271,083
<PP&E> 341,254
<DEPRECIATION> 173,587
<TOTAL-ASSETS> 923,644
<CURRENT-LIABILITIES> 167,278
<BONDS> 178,190
0
0
<COMMON> 51,226
<OTHER-SE> 321,769
<TOTAL-LIABILITY-AND-EQUITY> 923,644
<SALES> 756,664
<TOTAL-REVENUES> 1,100,443
<CGS> 438,041
<TOTAL-COSTS> 563,655
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,850
<INCOME-PRETAX> 162,243
<INCOME-TAX> 68,505
<INCOME-CONTINUING> 93,738
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,738
<EPS-PRIMARY> 1.14
<EPS-DILUTED> 1.10
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 5,543
<SECURITIES> 0
<RECEIVABLES> 170,520
<ALLOWANCES> 3,382
<INVENTORY> 53,109
<CURRENT-ASSETS> 272,484
<PP&E> 330,421
<DEPRECIATION> 168,371
<TOTAL-ASSETS> 904,596
<CURRENT-LIABILITIES> 155,121
<BONDS> 232,029
0
0
<COMMON> 25,781
<OTHER-SE> 346,078
<TOTAL-LIABILITY-AND-EQUITY> 904,596
<SALES> 524,037
<TOTAL-REVENUES> 777,420
<CGS> 300,531
<TOTAL-COSTS> 392,992
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,927
<INCOME-PRETAX> 119,802
<INCOME-TAX> 51,150
<INCOME-CONTINUING> 68,652
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,652
<EPS-PRIMARY> .83<F1>
<EPS-DILUTED> .81<F1>
<FN>
<F1>EPS WAS RESTATED FOR THE ADOPTION OF SFAS NO. 128 AND FOR THE SEPTEMBER 3,
1996 TWO-FOR-ONE STOCK SPLIT.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 6,557
<SECURITIES> 0
<RECEIVABLES> 123,245
<ALLOWANCES> 3,345
<INVENTORY> 40,962
<CURRENT-ASSETS> 188,439
<PP&E> 304,471
<DEPRECIATION> 165,250
<TOTAL-ASSETS> 788,407
<CURRENT-LIABILITIES> 124,862
<BONDS> 160,816
0
0
<COMMON> 25,724
<OTHER-SE> 325,599
<TOTAL-LIABILITY-AND-EQUITY> 788,407
<SALES> 324,725
<TOTAL-REVENUES> 490,371
<CGS> 185,803
<TOTAL-COSTS> 246,356
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,292
<INCOME-PRETAX> 77,120
<INCOME-TAX> 32,776
<INCOME-CONTINUING> 44,344
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,344
<EPS-PRIMARY> .54<F1>
<EPS-DILUTED> .52<F1>
<FN>
<F1>EPS WAS RESTATED FOR THE ADOPTION OF SFAS NO. 128 AND FOR THE SEPTEMBER 3,
1996 TWO-FOR-ONE STOCK SPLIT.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<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> 755,177
<CURRENT-LIABILITIES> 129,254
<BONDS> 149,549
0
0
<COMMON> 25,817
<OTHER-SE> 314,317
<TOTAL-LIABILITY-AND-EQUITY> 775,177
<SALES> 151,545
<TOTAL-REVENUES> 233,367
<CGS> 86,953
<TOTAL-COSTS> 196,095
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,791
<INCOME-PRETAX> 37,189
<INCOME-TAX> 15,803
<INCOME-CONTINUING> 21,386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,386
<EPS-PRIMARY> 0.26<F1>
<EPS-DILUTED> 0.25<F1>
<FN>
<F1>EPS WAS RESTATED FOR THE ADOPTION OF SFAS NO. 128 AND FOR THE SEPTEMBER 3,
1996 TWO-FOR-ONE STOCK SPLIT.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 18,366
<SECURITIES> 1
<RECEIVABLES> 117,783
<ALLOWANCES> 3,166
<INVENTORY> 37,796
<CURRENT-ASSETS> 188,191
<PP&E> 282,046
<DEPRECIATION> 153,584
<TOTAL-ASSETS> 755,466
<CURRENT-LIABILITIES> 125,833
<BONDS> 133,868
0
0
<COMMON> 25,941
<OTHER-SE> 306,614
<TOTAL-LIABILITY-AND-EQUITY> 755,466
<SALES> 621,909
<TOTAL-REVENUES> 910,891
<CGS> 363,303
<TOTAL-COSTS> 470,645
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,970
<INCOME-PRETAX> 136,755
<INCOME-TAX> 58,161
<INCOME-CONTINUING> 78,594
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 78,594
<EPS-PRIMARY> .94<F1>
<EPS-DILUTED> .92<F1>
<FN>
<F1>EPS WAS RESTATED FOR THE ADOPTION OF SFAS NO. 128 AND FOR THE SEPTEMBER 3,
1996 TWO-FOR-ONE STOCK SPLIT.
</FN>
</TABLE>
