UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended March 31, 1997
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to ____________
Commission File No. 0-18984
REYNOLDS, SMITH AND HILLS, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2986466
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4651 Salisbury Road 32256
Jacksonville, Florida (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (904) 296-2000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ----------------
Common Stock, $.01 par value None
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[ ]
The estimated aggregate market value of Common Stock held by
non-affiliates as of June 20, 1997 computed with reference to the last sales
price, was $3,155,000.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [ ]
The number of shares of Common Stock outstanding as of June 20, 1997
was 454,864 shares.
Documents incorporated by reference:
DOCUMENT WHERE INCORPORATED
-------- ------------------
Proxy Statement Dated June 20, 1997 Part III
<PAGE>
TABLE OF CONTENTS
FORM 10-K
Item
Number CAPTION PAGE
------ ------- ----
PART I
Item 1. BUSINESS 3
Item 2. PROPERTIES 5
Item 3. LEGAL PROCEEDINGS 5
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 5
EXECUTIVE OFFICERS OF THE REGISTRANT 5
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 6
Item 6. SELECTED FINANCIAL DATA 6
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 11
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 11
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT 12
Item 11. EXECUTIVE COMPENSATION 12
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 12
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 12
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K 12
2
<PAGE>
PART I
Item 1. BUSINESS
Reynolds, Smith and Hills, Inc. (the Company) is a professional service
firm operating in the engineering, architectural design and environmental
services industry. The Company is a Florida corporation and operates through
seven offices. It was incorporated in 1989 and commenced business operations on
June 29, 1990. As used herein, the Company refers to Reynolds, Smith and Hills,
Inc. and its subsidiaries.
The Company provides a full range of architectural, engineering,
planning and environmental services to public and private sector clients
primarily in the Southeastern United States. Specific industry markets are also
served nationally and internationally. These services are provided through the
following market-focused programs of the Company:
* Transportation - Services are provided to governmental
agencies and private entities and include planning, design,
environmental, and construction engineering and inspection
services for all modes of transportation (including highways
and bridges, mass transit, rail and port).
* Aviation - Services are provided to governmental agencies and
private entities (including air carriers and manufacturers)
and include planning, design, and environmental services for
airfields, terminals, and support buildings.
* Aerospace and Defense - Services are provided to NASA,
Department of Defense, Spaceport Florida Authority and major
aerospace contractors and include the development of launch
and processing facilities for Saturn, Shuttle, Trident, Titan
and other space vehicles.
* Public Infrastructure - Services are provided to local
government and quasi-governmental agencies. Services include
planning, evaluation, architectural and engineering design,
permitting, and construction administration for road, water,
wastewater, storm water and solid waste systems. These
services are also included for public facilities such as parks
and public buildings.
* Commercial - Services are provided to commercial and
industrial entities engaged in planning, designing and
construction of a wide variety of structures and land
development (including office buildings and office parks,
warehouses, hotels and resorts, research/development and
manufacturing facilities, sports and recreational facilities,
and computer centers).
* Institutional - Services are provided to public agencies
engaged in governmental, educational, recreational, medical
and scientific facilities, and land development. Services
include planning and designing of a wide variety of structures
(including schools and campus master planning, courthouses and
other governmental buildings, research and technical
facilities, community parks and recreational facilities, and
media centers).
3
<PAGE>
Competition. The engineering and architectural services industry is
highly competitive. The Company's competitors include large national firms as
well as many small local firms. The Company competes with these firms on the
basis of technical capabilities, qualifications of personnel, reputation,
quality and price. Additionally, a local presence is important in certain areas.
No one firm currently dominates a significant portion of the industry.
Major Customers. For the years ended March 31, 1997, 1996 and 1995,
approximately 80%, 75% and 75%, respectively, of the Company's business was with
departments or agencies of federal, state and local governments. Contracts with
the Florida Department of Transportation provided 35%, 40% and 35% of total
revenues for fiscal years 1997, 1996 and 1995, respectively. The loss of a
significant client such as Florida Department of Transportation would have a
material adverse effect on the Company. No other customer accounted for 10% or
more of total revenues.
Backlog. Gross revenue backlog is the estimated revenue from contracts
entered into with clients, less that portion which has been recognized as
revenue. Backlog is subject to revision due to cancellations, modifications or
changes in the scope of projects. There can be no assurance that signed
contracts will ultimately be authorized or will not be cancelled by clients in
accordance with their terms. Net revenue backlog is estimated revenue excluding
subconsultant and other direct costs and more accurately reflects the amounts to
be earned for activities performed by the Company.
The Company's gross backlog at March 31, 1997 was $32.6 million
compared to $38.1 million at March 31, 1996. Net backlog was $23.1 million at
March 31, 1997 as compared to $25.3 million at March 31, 1996. Approximately
$26.8 million of services included in the Company's gross backlog as of March
31, 1997 will be performed in fiscal year 1998. The Company expects additional
revenue in 1998 from sales generated in 1998 which are not included in the March
31, 1997 backlog.
Governmental Contracts. Some service contracts with departments or
agencies of federal, state, and local governments are subject to renegotiation
of profits or termination at the election of the government. The Company is not
aware of any adjustments which would have a material impact on the Company.
Compliance with Environmental Laws. Compliance with federal, state and
local regulations which have been enacted or adopted relating to the protection
of the environment is not expected to have any material effect upon the capital
expenditures, earnings and competitive position of the Company. However, such
compliance by the Company's clients may require the need for the
environmental-related services which the Company provides.
Employees. At March 31, 1997 the Company employed approximately 365
persons.
4
<PAGE>
Item 2. PROPERTIES
The Company's principal office occupies leased office space in
Jacksonville, Florida and six branches occupy leased office space in the
following Florida locations: Tampa, Merritt Island, Orlando, Plantation,
Tallahassee, and Fort Myers. These leases expire at various dates through 2001.
The current facilities are sufficient for the operation of the business.
Item 3. LEGAL PROCEEDINGS
The Company is subject to lawsuits involving claims typical of those filed
against engineering and architectural professions, alleging primarily
professional errors and/or omissions. The Company maintains professional
liability insurance which insures against risk within the policy limits. There
are no legal proceedings pending or, to the knowledge of the Company, threatened
against the Company which in management's opinion would have a material adverse
effect on the Company's financial condition.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended March 31, 1997.
------------------
EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons serve as the executive officers of the Company:
Name Age Position Held
---- --- -------------
Leerie T. Jenkins, Jr. 48 Chairman of the Board
and Chief Executive Officer
David K. Robertson 45 Executive Vice President, Secretary,
Treasurer, Chief Financial Officer, and
Director
Charles W. Gregg 47 Executive Vice President
and Chief Operating Officer
Darold F. Cole 55 Senior Vice President and Director
J. Ronald Ratliff 48 Senior Vice President and Director
5
<PAGE>
Mr. Jenkins' principal positions are Chairman of the Board and Chief
Executive Officer of the Company, which he has held since June 1990. Mr. Jenkins
has been employed with the Company and predecessor companies for over 25 years.
He holds a Masters and Bachelors degree in landscape architecture from the
University of Michigan and University of Georgia, respectively.
Mr. Robertson's principal positions are Executive Vice President, which
he has held since January 1995, Secretary, Treasurer, Chief Financial Officer
and Director of the Company, which he has held since June 1990. Prior to January
1995 Mr. Robertson was Senior Vice President. Mr. Robertson has been employed
with the Company and predecessor companies for over 15 years. He graduated from
Florida State University with a degree in Business.
Mr. Gregg's principal positions are Executive Vice President and Chief
Operating Officer of the Company, which he has held since September 1995. Prior
to September 1995 and since 1992 Mr. Gregg was Senior Vice President. Prior to
joining the Company in 1992, Mr. Gregg was Director of Business Development for
Kiewit Construction Group, Inc. He graduated from the University of Florida with
a degree in civil engineering and holds a Masters degree with Rollins College,
Crummer School of Business.
Mr. Cole's principal positions are Senior Vice President and Director
of the Company, which he has held since June 1990. Mr. Cole has been employed
with the Company and predecessor companies for over 28 years. He holds a degree
in electrical engineering from Kansas State University.
Mr. Ratliff's principal positions are Senior Vice President and
Director of the Company, which he has held since June 1990. Mr. Ratliff has been
employed with the Company and predecessor companies for over 19 years. He holds
a Masters and Bachelors degree from the University of South Florida.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's securities are not presently traded on any public stock
exchange or other public market. The Company had approximately 192 shareholders
of record at March 31, 1997, including persons owning stock through the
Company's 401(k) plan. The Company has paid no dividends on its common stock as
it is prohibited from doing so pursuant to its Bank credit agreement. See Note 4
to the consolidated financial statements included in this report.
Item 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with the financial statements of the Company, including the notes thereto.
6
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(in thousands, except per share data)
Year Ended March 31
-------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Gross revenues $ 39,065 $ 34,070 $ 30,524 $ 27,974 $ 28,560
Net service revenues 27,397 25,595 23,620 22,005 23,151
Net income 593 92 350 271 62
Common stock per share data:
Net income per share 1.30 0.20 0.78 0.61 0.15
Weighted average shares of common 455,000 451,000 446,000 442,000 428,000
stock outstanding
BALANCE SHEET DATA:
Working capital 2,781 1,935 2,314 2,536 2,574
Total assets 12,680 12,521 11,858 11,203 9,901
Long-term debt (less current portion) 7 76 524 1,035 1,460
Common stockholders' equity 5,337 4,741 4,576 4,193 3,915
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth the percentage of net service revenue
represented by the items in the Company's consolidated statements of income:
Year Ended March 31,
--------------------
1997 1996 1995
----- ----- -----
Gross revenue 142.6% 133.1% 129.2%
Subcontract and other
direct costs 42.6 33.1 29.2
----- ----- -----
Net service revenue 100.0 100.0 100.0
Cost of services 39.5 40.4 41.2
----- ----- -----
Gross profit 60.5 59.6 58.8
Selling, general, and
administrative expenses 56.9 58.0 55.4
----- ----- -----
Operating income 3.6 1.6 3.4
Other income (expense) .2 (.6) (.6)
----- ----- -----
Income before income taxes 3.8 1.0 2.8
Income tax expense 1.6 .6 1.3
----- ----- -----
Net income 2.2% .4% 1.5%
===== ===== =====
8
<PAGE>
Gross Revenue:
Revenues for fiscal 1997 increased by 15% to $39.1 million from $34.1
million in fiscal 1996. This increase was due to transportation, aviation,
aerospace and defense, commercial and institutional projects. Revenues in these
program areas increased as a result of sales efforts throughout the current and
prior years. Revenues for fiscal 1996 increased by 12% to $34.1 million from
$30.5 million in fiscal 1995. This increase was due primarily to increases in
transportation, aviation, commercial and institutional projects as a result of
the sales to public and private sector clients.
For the fiscal years ended March 31, 1997, 1996 and 1995 approximately
80%, 75% and 75%, respectively, of the Company's revenues were generated from
public sector clients. For the same periods 35%, 40% and 35% of the Company's
revenues resulted from services provided to the Florida Department of
Transportation.
Subcontract and Other Direct Costs:
As a percentage of net service revenue, subcontract and other direct
costs were 42.6%, 33.1% and 29.2% in 1997, 1996 and 1995, respectively. For both
fiscal 1997 and 1996, there was an increased use of subconsultants primarily in
the transportation, aviation, commercial and institutional programs.
Net Service Revenue:
Net service revenue increased 7% to $27.4 million in fiscal 1997 from
$25.6 million in fiscal 1997. Net service revenue for fiscal 1996 increased 8%
to $25.6 million from $23.6 million for fiscal 1995. These increases were due to
the increases in gross revenues as discussed above for both fiscal periods.
Cost of Services:
Cost of services represents direct labor costs associated with the
generation of net service revenues. Cost of services, as a percentage of net
service revenue, has experienced slight improvement at 39.5%, 40.4% and 41.2%,
respectively for fiscal years ended March 31, 1997, 1996 and 1995. This
percentage reflects improving project efficiency. Gross profit, as a result, has
also improved at 60.5%, 59.6% and 58.8% for fiscal years 1997, 1996 and 1995,
respectively.
Selling, General and Administrative Expenses:
Selling, general and administrative (SG&A) expenses consist of labor
costs of operational personnel not utilized on projects (i.e. indirect labor),
labor costs of administrative and support personnel, office rent, depreciation,
insurance, and other operating expenses.
9
<PAGE>
Selling, general and administrative expenses increased 5% to $15.6
million in 1997 from $14.8 million in 1996. This increase was due primarily to
increased incentive compensation and further acquisition and implementation of
computer and communications technology. SG&A expense as a percentage of net
service fees decreased to 56.9% in fiscal 1997 from 58.0% in fiscal 1996.
SG&A expenses increased 13% to $14.8 million in 1996 from $13.1 million
in 1995. This increase was due primarily to decreases in the overall percentage
of labor costs charged directly to projects (utilization). Utilization for
fiscal 1996 was 64% versus 66% for fiscal 1995. Drops in utilization for the
Greensboro, NC office and the Public Infrastructure program and the addition of
management personnel were the primary causes of the Company's overall decrease
in utilization. Increases in equipment expenses related to information
technology, office rent expense due to addition of square footage in several
offices, temporary help, professional fees, and professional liability insurance
costs also caused the increase in SG&A expense. In addition, costs for the
restructure of the Greensboro, NC office were incurred in fiscal 1996 (see
paragraph below). As a result of these increases in expenses, SG&A expense as a
percentage of net service fees increased to 58.0% in fiscal 1996 from 55.4% in
fiscal 1995.
Other Income (Expense):
Interest expense was $31,000, $155,000 and $178,000 for fiscal 1997,
1996 and 1995, respectively. These decreases were a result of lower outstanding
balances on the Company's term loan, credit line and capital leases.
Net Income:
Net income was $593,000 in 1997, $92,000 in 1996, and $350,000 in 1995.
The increase in 1997 over 1996 was due primarily to increased net service
revenue (gross revenue less subcontract costs). The decrease in 1996 from 1995
was due primarily to increases in SG&A expenses as discussed above.
In fiscal 1996 the Greensboro, North Carolina office was significantly
downsized as a result of continuing net losses. That office's restructure was
completed in 1997. As a result of the Greensboro office restructure, the Company
made a provision of $286,000 in fiscal 1996 to cover all related costs. The
Greensboro, NC office's net losses from operations were $812,000 and $375,000
for fiscal years March 31, 1996 and 1995 respectively.
10
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital measurements are set forth below:
March 31
--------
1997 1996 1995
---- ---- ----
Working capital (in thousands) $2,781 $1,935 $2,536
Current ratio 1.42:1 1.28:1 1.38:1
Ratio of liabilities to equity 1.38:1 1.64:1 1.59:1
Cash flows from operations were positive for each of the fiscal years
ended March 31, 1997, 1996 and 1995. The Company has made a significant
investment of working capital in information technology over the last three
years. Payments on notes payable and long-term debt totalled $448,000 in 1997,
including payment on the bank term loan of $375,000.
The Company has in place a line of credit with a bank which provides
for additional borrowing up to $1,750,000 at March 31, 1997, with interest at
the bank's prime rate plus .75 percent. There were no borrowings outstanding
under the line of credit at March 31, 1997.
The agreement for the line of credit contains covenants related to
working capital, net worth, debt to net worth, and debt service coverage. In
addition, the agreement prohibits the payment of dividends on any shares of
capital stock. The Company is in compliance with all provisions of the line of
credit.
The Company believes that its existing financial resources, together
with its cash flow from operations and its unused bank line of credit, will
provide sufficient capital to fund its operations for fiscal 1998.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated Financial Statements of the registrant are set forth
beginning on page 15 of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
11
<PAGE>
PART III
Item 10 through 13.
The information required by Items 10 through 13 is included in the
Company's definitive proxy statement dated June 20, 1997, incorporated herein by
reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
PAGE
----
(a)(1) Financial Statements
Independent Auditors' Report 15
Consolidated Statements of Income, years ended
March 31, 1997, 1996, and 1995 16
Consolidated Balance Sheets as of March 31,
1997 and 1996 17
Consolidated Statements of Common Shareholders'
Equity, years ended March 31, 1997, 1996,
and 1995 18
Consolidated Statements of Cash Flows, years
ended March 31, 1997, 1996, and 1995 19
Notes to Consolidated Financial Statements 20
(a)(2) Financial Statement Schedules
Independent Auditors' Report 28
Schedule II - Valuation and Qualifying Accounts 29
12
<PAGE>
(a)(3) Exhibits
3.1* Articles of Incorporation of the Company, as amended
3.2* By-Laws of the Company
10.5** Reynolds, Smith and Hills, Inc. 1991 Employee Stock Bonus Plan
10.6** Reynolds, Smith and Hills, Inc. 1991 Nonqualified Stock Option Plan
10.7** Reynolds, Smith and Hills, Inc. 1991 Incentive Stock Option Plan
10.8*** Term Loan Agreement dated March 25, 1992 between the Company and
American National Bank of Florida.
10.9*** Revolving Loan Agreement dated March 25, 1992 between the Company and
American National Bank of Florida.
21 List of Subsidiaries 30
23 Consent of Deloitte & Touche LLP 31
* Filed in connection with and incorporated by reference to
Registration Statement on Form 10 (filed January 15, 1991).
** Filed in connection with and incorporated by reference to
Amendment No. 1 on Form 8 (filed April 2, 1991).
*** Filed as exhibit to and incorporated by reference to Form 10-K
for fiscal year March 31, 1992.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the quarter ended March 31, 1997.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Reynolds, Smith and Hills, Inc.
Dated: June 20, 1997 By /s/David K. Robertson
------------- ---------------------
David K. Robertson
Executive Vice President,
Secretary, Treasurer, Chief
Financial Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Capacity Date
--------- -------- ----
/s/ Leerie T. Jenkins, Jr. Chairman of the Board June 20, 1997
- - ------------------------- and Chief Executive Officer
Leerie T. Jenkins, Jr. (Principal Executive Officer)
/s/ David K. Robertson Executive Vice President, June 20, 1997
- - ------------------------- Treasurer, Chief Financial
David K. Robertson Officer, Secretary, and
Director (Principal Financial
and Accounting Officer)
/s/ Charles W. Gregg Executive Vice President and June 20, 1997
- - ------------------------- Chief Operating Officer
Charles W. Gregg
/s/ Darold F. Cole Director June 20, 1997
- - -------------------------
Darold F. Cole
/s/ Ronald Ratliff Director June 20, 1997
- - -------------------------
J. Ronald Ratliff
Director
- - -------------------------
David E. Thomas, Jr.
Director
- - -------------------------
Alexander P. Zechella
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Reynolds, Smith and Hills, Inc.
Jacksonville, Florida
We have audited the accompanying consolidated balance sheets of Reynolds, Smith
and Hills, Inc. and its subsidiaries as of March 31, 1997 and 1996 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended March 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Reynolds, Smith and Hills, Inc. and
its subsidiaries as of March 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1997 in conformity with generally accepted accounting principles.
Jacksonville, Florida
May 23, 1997
/S/DELOITTE & TOUCHE LLP
15
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED MARCH 31
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
GROSS REVENUE $ 39,065,000 $ 34,070,000 $ 30,524,000
SUBCONTRACT AND OTHER DIRECT COSTS 11,668,000 8,475,000 6,904,000
----------- ---------- ----------
Net service revenue 27,397,000 25,595,000 23,620,000
COST OF SERVICES 10,817,000 10,357,000 9,730,000
----------- ---------- ----------
Gross profit 16,580,000 15,238,000 13,890,000
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 15,581,0000 14,839,000 13,094,000
----------- ---------- ----------
Operating income 999,000 399,000 796,000
OTHER INCOME (EXPENSE):
Interest and other income (expense) 90,000 (4,000) 34,000
interest expense (31,000) (155,000) (178,000)
----------- ---------- ----------
Income before income taxes 1,058,000 240,000 652,000
INCOME TAX EXPENSE 465,000 148,000 302,000
----------- ---------- ----------
NET INCOME $ 593,000 $ 92,000 $ 350,000
=========== ========== ==========
NET INCOME PER COMMON SHARE $ 1.30 $ 0.20 $ 0.78
=========== ========== ==========
AVERAGE COMMON SHARES OUTSTANDING 455,000 451,000 446,000
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
CONSOLIDATED BALANCE SHEETS
YEARS ENDED MARCH 31
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets 1997 1996
- - ------ ---- ----
<S> <C> <C>
CURRENT ASSETS: $ 1,459,000 $ 263,000
Cash
Accounts receivable, net of allowance for
doubtful accounts of $127,000 and $148,000 3,682,000 5,178,000
Unbilled service revenue 3,955,000 3,312,000
Prepaid expenses and other current assets 210,000 197,000
Deferred income taxes 166,000 0
---------- ----------
Total current assets 9,472,0000 8,950,000
PROPERTY AND EQUIPMENT, net 2,202,000 2,456,000
OTHER ASSETS 62,000 91,000
IDENTIFIABLE INTANGIBLE ASSETS, net of accumulated
amortization of $852,000 and $795,000 186,000 243,000
COST IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESS,
net of accumulated amortization of $154,000 and $131,000 758,000 781,000
---------- ----------
$12,680,000 $12,521,000
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
CURRENT LIABILITIES:
Notes payable and current portion of
long-term debt $ 69,000 $ 863,000
Accounts payable 2,080,000 2,244,000
Accrued expenses 2,604,000 1,832,000
Unearned service revenue 1,938,000 2,053,000
Deferred income taxes 0 23,000
---------- ----------
Total current liabilities 6,691,000 7,015,000
LONG-TERM DEBT 7,000 76,000
DEFERRED INCOME TAXES 281,000 223,000
OTHER LIABILITIES 364,000 466,000
---------- ----------
Total liabilities 7,343,000 7,780,000
---------- ----------
COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 4,000,000 shares
authorized, 455,000 issued and outstanding 5,000 5,000
Paid-in capital 3,537,000 3,534,000
Retained earnings 1,795,000 1,202,000
---------- ----------
Total shareholders' equity 5,337,000 4,741,000
---------- ----------
$12,680,000 $12,521,000
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
------------
Paid-in Retained
Shares Amount Capital Earnings Total
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, MARCH 31, 1994 $444,000 $4,000 $3,429,000 $760,000 $4,193,000
Issuance of common stock,
net of issuance costs 4,000 1,000 32,000 33,000
Net Income 350,000 350,000
-----------------------------------------------------------
BALANCE, MARCH 31, 1995 448,000 5,000 3,461,000 1,110,000 4,576,000
Issuance of common stock,
net of issuance costs 7,000 -- 73,000 73,000
Net Income 92,000 92,000
-----------------------------------------------------------
BALANCE, MARCH 31, 1996 455,000 5,000 3,534,000 1,202,000 4,741,000
Issuance of common stock,
net of issuance costs -- -- 3,000 3,000
Net Income 593,000 593,000
-----------------------------------------------------------
BALANCE, MARCH 31, 1997 $455,000 $5,000 $3,537,000 $1,795,000 $5,337,000
===========================================================
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES: $ 593,000 $ 92,000 $ 350,000
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 747,000 714,000 710,000
Deferred income taxes (131,000) 101,000 (283,000)
Loss on disposal of fixed assets 11,000 28,000 11,000
Deferred rent charges (97,000) (82,000) (68,000)
Change in operating assets and liabilities:
Accounts receivable and unbilled service revenue 853,000 (801,000) (501,000)
Other assets and prepaid expenses 6,000 (30,000) (52,000)
Accounts payable and accrued expenses 605,000 869,000 531,000
Unearned service revenue (115,000) 9,000 835,000
--------- --------- ---------
Net cash provided by operating activities 2,472,000 900,000 1,533,000
--------- --------- ---------
INVESTING ACTIVITIES:
Capital expenditures (422,000) (905,000) (778,000)
Proceeds from sale of fixed assets 8,000 16,000 8,000
--------- --------- ---------
Net cash used by investing activities (414,000) (889,000) 770,000
--------- --------- ---------
FINANCING ACTIVITIES:
Repayments of long-term debt (448,000) (510,000) (612,000)
Net increase (decrease) in credit line payable to bank (415,000) 136,000 (99,000)
Net proceeds from issuance of common stock 1,000 49,000 0
--------- --------- ---------
Net cash used by financing activities (862,000) (325,000) (711,000)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 1,196,000 (314,000) 52,000
CASH AT BEGINNING OF PERIOD 263,000 577,000 525,000
--------- --------- ---------
CASH AT END OF PERIOD $1,459,000 $ 263,000 $ 577,000
========= ========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest Paid $ 36,000 $ 155,000 $ 176,000
Income Taxes Paid 444,000 360,000 437,000
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - Reynolds, Smith and Hills, Inc. (the Company)
is a professional service firm operating in the engineering and
architectural design services industry. The Company provides a full
range of architectural, engineering, planning and environmental
services.
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
transactions and accounts have been eliminated in consolidation.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
Income Recognition - Revenue from contract services is recognized on
the percentage-of- completion method. Revenue is recorded as costs are
incurred, and profit is recognized on each contract based on the
percentage that incurred costs bear to estimated total costs. In the
event of an anticipated loss, the entire amount of the loss is charged
to current operations.
The Company incurs subcontract and other direct costs (out-of-pocket
expenses) some of which are passed through directly to its clients. The
Company believes that revenue excluding subcontract and other direct
costs, more accurately reflects the amounts earned for activities
performed by the Company. Accordingly, the Company reports such costs
as a reduction of gross revenue to arrive at net service revenue.
Unbilled service revenue represents revenues recognized in excess of
amounts billed. Unearned service revenue represents billings in excess
of revenues recognized. Unbilled service revenues which will not be
collected during the next year are not significant.
Property and Equipment - Property and equipment is stated at cost.
Depreciation is computed principally on the straight-line method over
the estimated useful lives of the assets. Depreciation of assets
recorded under capitalized leases is computed on the straight-line
method over the lesser of the estimated useful life of the asset or the
term of the lease.
Identifiable Intangible Assets - Identifiable intangible assets consist
20
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
of values allocated to key employees, contract backlog, proposals, and
a covenant not to compete and are being amortized on a straight-line
basis over periods of 2 to 10 years.
Cost in Excess of Net Assets of Acquired Business - Cost in excess of
net assets of acquired businesses is being amortized on the
straight-line method over forty years.
Income Taxes - The Company and its subsidiaries file consolidated
Federal income tax returns. Deferred taxes primarily result from
accelerated depreciation methods used for tax purposes and deferred
rent charges.
New Accounting Standards - Effective April 1, 1996, the Company adopted
SFAS No. 123, "Accounting for Stock-Based Compensation." The pro forma
effect of SFAS No. 123 on net income and earnings per share is not
material to the financial statements.
For the fiscal year ending March 31, 1998 and the quarter ending
December 31, 1997, the Company will be required to adopt SFAS No. 128,
"Earnings Per Share". The impact on the financial statements when SFAS
No. 128 is adopted is expected to be immaterial.
Net Income per Common Share - Net income per common share is computed
by dividing net income by the weighted average number of common shares
outstanding. Options outstanding to purchase common stock had no
significant dilutive effect.
Cash Equivalents - The Company considers cash on hand and cash held in
banks subject to immediate withdrawal to represent cash.
Reclassifications - Certain reclassifications have been made in the
1996 and 1995 financial statements to conform to classifications used
in the 1997 financial statements.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at March 31:
1997 1996
----------- -----------
Leasehold improvements $ 165,000 $ 163,000
Equipment 5,321,000 4,968,000
----------- -----------
5,486,000 5,131,000
Accumulated depreciation (3,284,000) (2,675,000)
----------- -----------
$ 2,202,000 $ 2,456,000
=========== ===========
21
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
3. ACCRUED EXPENSES
Accrued expenses consist of the following at March 31:
1997 1996
---------- ----------
Accrued Payroll $ 633,000 $ 639,000
Accrued Incentive Compensation 570,000 117,000
Other 1,401,000 1,076,000
---------- ----------
$2,604,000 $1,832,000
========== ==========
4. NOTES PAYABLE AND CURRENT PORTION OF LONG-TERM DEBT
Notes payable and the current portion of long-term debt consist of the
following at March 31:
1997 1996
-------- --------
Credit line payable to bank, interest
at prime plus 3/4% (9.25% at March
31, 1997) $ -- $415,000
Current portion of long-term debt 69,000 448,000
-------- --------
$ 69,000 $863,000
======== ========
The credit line is collateralized by the Company's accounts receivable,
unbilled service revenue, and property and equipment. At March 31,
1997, the Company had $1,750,000 of additional borrowing available
under the credit line.
The credit line requires the Company to be in compliance with financial
covenants relating to working capital, net worth, debt to net worth,
and debt coverage. Additionally, the financial covenants restrict the
Company from paying common stock dividends as long as the debt remains
outstanding.
22
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
5. LONG-TERM DEBT
Long-term debt consists of the following at March 31:
1997 1996
--------- ---------
Installment note; interest at
9.25%, due April 1, 1997 $ 31,000 $ 406,000
Capital lease obligations 45,000 118,000
--------- ---------
76,000 524,000
Less current portion (69,000) (448,000)
--------- ---------
Total long-term debt $ 7,000 $ 76,000
========= =========
Substantially all of the Company's tangible assets are pledged as
security for the above debt obligations.
Future maturities of long-term debt at March 31, 1997 are as follows:
1998 $69,000
1999 7,000
-------
$76,000
=======
6. INCOME TAXES
The provision for income taxes for the years ended March 31 consist of
the following:
1997 1996 1995
--------- --------- ---------
Current:
Federal $ 495,000 $ 37,000 $ 497,000
State 101,000 10,000 88,000
Deferred:
Federal (109,000) 84,000 (240,000)
State ( 22,000) 17,000 ( 43,000)
--------- --------- ---------
$ 465,000 $ 148,000 $ 302,000
========= ========= =========
23
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
The differences between the provision for income taxes and income taxes
computed using the U.S. Federal statutory rate are as follows:
1997 1996 1995
--------- --------- ---------
Amount computed using
the statutory rate $ 360,000 $ 82,000 $ 222,000
Increase (reduction) in
taxes resulting from:
State income taxes 51,000 15,000 45,000
Goodwill amortization 9,000 9,000 9,000
Alternative minimum tax
(credit) -- -- (30,000)
Meals and entertainment 37,000 34,000 32,000
Other 8,000 8,000 24,000
--------- --------- ---------
$ 465,000 $ 148,000 $ 302,000
========= ========= =========
The following table identifies net deferred taxes recognized in the
Company's balance sheet at March 31:
1997 1996
--------- ---------
Deferred tax asset $ 505,000 $ 431,000
Valuation allowance -- ( 82,000)
Deferred tax liability (620,000) (595,000)
--------- ---------
Total deferred taxes $(115,000) $(246,000)
========= =========
The types of temporary differences and their related tax effects which
create deferred taxes at March 31 are summarized as follows:
1997 1996
---- ----
Assets:
Allowance for doubtful accounts $ 49,000 $ 56,000
Allowance for warranty claims 111,000 81,000
Excess rental expense over payments 59,000 97,000
Accruals not currently deductible 286,000 115,000
Capital loss carryover -- 82,000
--------- ---------
$ 505,000 $ 431,000
========= =========
Liability:
Excess of tax over book depreciation $(309,000) $(315,000)
Accrued Liabilities (108,000) ( 78,000)
Capitalized expenses (203,000) (202,000)
--------- ---------
$(620,000) $(595,000)
========= =========
24
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
7. LEASES
The Company leases certain facilities and equipment under
noncancellable leases expiring in various years through 2002. Some of
the operating leases provide that the Company pay taxes, maintenance,
insurance and other occupancy costs applicable to these premises. Rent
expense for the years ended March 31, 1997, 1996 and 1995 amounted to
$2,109,000, $1,808,000 and $1,798,000, respectively.
Future minimum payments under capital leases and noncancellable
operating leases are as follows:
Capital Operating
Leases Leases
------ ------
1998 $ 41,000 $ 1,621,000
1999 7,000 793,000
2000 ----- 675,000
2001 ----- 451,000
2002 ----- 146,000
------------- ------------
Total minimum payments 48,000 $ 3,686,000
===========
Amount representing interest ( 3,000)
----------
Present value of net minimum lease
payments $ 45,000
========
8. COMMITMENTS AND CONTINGENCIES
The Company is subject to lawsuits involving claims typical of those
filed against engineering and architectural professions. In
management's opinion the potential losses not covered by insurance
would not be material to the Company's financial position.
For each of the years ended March 31, 1997, 1996 and 1995 approximately
80%, 75% and 75% of the Company's business is with departments or
agencies of Federal, state and local governments. For the same periods
35%, 40% and 35% of the Company's gross revenues resulted from services
provided to the Florida Department of Transportation. These contracts
may be subject to renegotiation or termination at the election of the
government. The Company is subject to examinations by representatives
of certain governmental agencies for which it provides services. In
management's opinion the results of any examination would not have a
significant effect on the Company's financial position.
25
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
9. EMPLOYEE BENEFIT PLAN
The Company sponsors a Profit Sharing Plan which qualifies under
Section 401(k) of the Internal Revenue Code. The Plan allows
participating employees to contribute from 2% to 15% of their earned
compensation to the plan. The Company contributes to the plan 25% of
each participant's contribution, up to the 6% level of the
participant's contribution. For the years ended March 31, 1997, 1996
and 1995 the Company contributed $167,000, $158,000 and $119,000,
respectively. Participants in the plan have the option to purchase
shares of the Company's common stock. At March 31, 1997, 96,000 shares
of Company stock have been issued and 294,000 shares are reserved for
future issuance under the plan.
10. STOCK BONUS AND OPTION PLAN
The Company has a stock bonus plan that provides for the awarding of
the Company's common stock to selected employees. At March 31, 1997,
39,000 shares are reserved for future issuance under the plan.
The Company has stock option plans that provide to selected employees
the granting of incentive and non-qualified options to purchase the
Company's common stock. A summary of option transactions is shown
below.
1997 1996
------------------ ------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
------- ----- ------- -----
Outstanding at
beginning of year 31,400 $ 11 25,400 $ 11
Options granted 500 12 7,100 11
Options exercised 100 10 100 10
Options forfeited 3,500 11 1,000 12
------- -------
Outstanding at
end of year 28,300 $ 11 31,400 $ 11
======= =======
Options exercisable at
year end 21,300 19,300
26
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - --------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at
March 31, 1997:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 3/31/97 Life (years) Price at 3/31/97 Price
------ ---------- ------------ ----- ---------- -----
$10.25-$10.99 8,000 2.3 $10.45 5,800 $10.42
$11.00-$11.99 18,600 1.6 11.35 14,200 11.44
$12.00-$12.65 1,700 1.5 12.47 1,300 12.57
------ ------
28,300 1.8 11.16 21,300 11.23
====== ======
Remaining non-exercisable stock options as of March 31, 1997 become available as
follows:
1998 4,300
1999 2,500
2000 200
------
7,000
=====
At March 31, 1997, 121,700 stock options are reserved for future issuance under
the plans.
11. FINANCIAL INSTRUMENTS
The Company used the following methods and assumptions to estimate the
fair value of the following financial instrument:
Debt. Interest rates that are currently available to the
Company for issuance of debt with similar terms and remaining
maturities are used to estimate fair value for debt instruments. The
Company believes the carrying amount is a reasonable estimate of such
fair value.
*****************************
27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Reynolds, Smith and Hills, Inc.
Jacksonville, Florida
We have audited the accompanying consolidated financial statements of Reynolds,
Smith and Hills, Inc. and its subsidiaries as of March 31, 1997 and 1996 and for
each of the three years in the period ended March 31, 1997, and have issued our
report thereon dated May 23, 1997; such report is included elsewhere in this
Form 10-K. Our audits also included the consolidated financial statement
schedule of Reynolds, Smith and Hills, Inc., listed in Item 14. This
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, such consolidated financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/DELOITTE & TOUCHE LLP
Jacksonville, Florida
May 23, 1997
28
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
REYNOLDS, SMITH AND HILLS, INC.
- - --------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- - --------------------------------------------------------------------------------
ADDITIONS: DEDUCTIONS:
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
DESCRIPTION OF PERIOD EXPENSES WRITE-OFFS OF PERIOD
----------- --------- -------- ---------- ---------
Year ended March 31, 1997:
Allowance for
doubtful accounts $ 148,000 $ 68,000 ($89,000) $ 127,000
Year ended March 31, 1996:
Allowance for
doubtful accounts $ 151,000 $ 56,000 ($59,000) $ 148,000
Year ended March 31, 1995:
Allowance for
doubtful accounts $ 172,000 $107,000 ($128,000) $ 151,000
29
<PAGE>
Exhibit 21
List of Subsidiaries
--------------------
1. RS&H Architects-Engineers-Planners, Inc.
(a North Carolina corporation)
2. Reynolds, Smith and Hills CS, Incorporated
(a Florida corporation)
30
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements Numbered
33-40554, 33-40553, 33-40552 and 33-40551 of Reynolds, Smith and Hills, Inc. on
Form S-8 of our report dated May 23, 1997 appearing in this Annual Report on
Form 10-K of Reynolds, Smith and Hills, Inc. for the years ended March 31, 1997,
1996 and 1995.
/S/DELOITTE & TOUCHE LLP
Jacksonville, Florida
June 17, 1997
31
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,459,000
<SECURITIES> 0
<RECEIVABLES> 7,764,000
<ALLOWANCES> 127,000
<INVENTORY> 0
<CURRENT-ASSETS> 9,472,000
<PP&E> 5,486,000
<DEPRECIATION> 3,284,000
<TOTAL-ASSETS> 12,680,000
<CURRENT-LIABILITIES> 6,691,000
<BONDS> 7,000
0
0
<COMMON> 5,000
<OTHER-SE> 5,332,000
<TOTAL-LIABILITY-AND-EQUITY> 12,680,000
<SALES> 0
<TOTAL-REVENUES> 39,065,000
<CGS> 0
<TOTAL-COSTS> 22,485,000
<OTHER-EXPENSES> 15,423,000
<LOSS-PROVISION> 68,000
<INTEREST-EXPENSE> 31,000
<INCOME-PRETAX> 1,058,000
<INCOME-TAX> 465,000
<INCOME-CONTINUING> 593,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 593,000
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
</TABLE>
