UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 1998
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 Number 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, Jacksonville, Florida 32256
--------------------------------------------------
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (904) 296-2000
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 number of shares outstanding of the registrant's Common stock, par value
$.01 per share, at September 30, 1998 was 460,000 shares.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
REYNOLDS, SMITH AND HILLS, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
- -------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
September 30 September 30
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Gross Revenue $ 20,281,000 $ 18,438,000 $ 10,043,000 $ 8,924,000
Subcontract and Other
Direct Costs 5,472,000 5,342,000 2,574,000 2,538,000
------------ ------------ ------------ ------------
NET SERVICE REVENUE 14,809,000 13,096,000 7,469,000 6,386,000
Cost of Services 5,694,000 5,268,000 2,838,000 2,557,000
------------ ------------ ------------ ------------
GROSS PROFIT 9,115,000 7,828,000 4,631,000 3,829,000
Selling, General and
Administrative Expenses 8,931,000 7,427,000 4,558,000 3,644,000
------------ ------------ ------------ ------------
OPERATING INCOME 184,000 401,000 73,000 185,000
OTHER INCOME (EXPENSE):
Interest and other income 63,000 52,000 24,000 30,000
Interest expense (10,000) (2,000) (6,000) (1,000)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 237,000 451,000 91,000 214,000
INCOME TAX EXPENSE 121,000 202,000 55,000 97,000
------------ ------------ ------------ ------------
NET INCOME $ 116,000 $ 249,000 $ 36,000 $ 117,000
============ ============ ============ ============
BASIC EARNINGS PER SHARE $ .25 $ .55 $ .08 $ .26
============ ============ ============ ============
AVERAGE COMMON SHARES
OUTSTANDING 460,000 455,000 460,000 455,000
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
REYNOLDS, SMITH AND HILLS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
- --------------------------------------------------------------------------------
September 30, March 31,
1998 1998
---- ----
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 1,604,000 $ 2,364,000
Accounts receivable, net of allowance
for doubtful accounts of $172,000
and $162,000 4,437,000 4,113,000
Unbilled service revenue 4,101,000 3,680,000
Prepaid expenses and other current assets 102,000 225,000
Deferred income taxes 219,000 219,000
----------- -----------
Total current assets 10,463,000 10,601,000
Property and equipment, net 2,238,000 1,798,000
Other assets 44,000 47,000
Identifiable intangible assets, net of
accumulated amortization of
$937,000 and $909,000 100,000 128,000
Cost in excess of net assets of acquired
business, net of accumulated
amortization of $208,000
and $177,000 1,413,000 736,000
----------- -----------
TOTAL ASSETS $14,258,000 $13,310,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of
long-term debt $ 100,000 $ 7,000
Accounts payable 2,714,000 1,933,000
Accrued payroll 726,000 646,000
Accrued incentive compensation 163,000 548,000
Accrued expenses 1,208,000 1,487,000
Unearned service revenue 2,360,000 2,054,000
----------- -----------
Total current liabilities 7,271,000 6,675,000
Long-term debt 200,000 0
Deferred Income Taxes 206,000 206,000
Other Liabilities 494,000 521,000
----------- -----------
Total liabilities 8,171,000 7,402,000
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 4,000,000
shares authorized, 460,000 and 455,000
issued and outstanding 5,000 5,000
Paid-in capital 3,604,000 3,541,000
Retained Earnings 2,478,000 2,362,000
----------- -----------
Total shareholders' equity 6,087,000 5,908,000
----------- -----------
$14,258,000 $13,310,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
1998 1997
---- ----
OPERATING ACTIVITIES:
Net income $ 116,000 $ 249,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 389,000 380,000
Loss on disposal of fixed assets 3,000 --
Deferred rent charges (31,000) (54,000)
Change in operating assets and liabilities:
Accounts receivable and unbilled
service revenue (699,000) 157,000
Other assets and prepaid expenses 126,000 105,000
Accounts payable and accrued expenses 223,000 (82,000)
Unearned service revenue 306,000 30,000
----------- -----------
Net cash provided by operating activities 433,000 785,000
----------- -----------
INVESTING ACTIVITIES:
Capital expenditures (756,000) (159,000)
Purchase of subsidiary (387,000) --
Proceeds from sale of fixed assets 4,000 --
----------- -----------
Net cash used by investing activities (1,139,000) (159,000)
----------- -----------
FINANCING ACTIVITIES:
Repayments of debt (55,000) (50,000)
Net proceeds from issuance of common stock 1,000 --
----------- -----------
Net cash used by financing activities (54,000) (50,000)
----------- -----------
NET (DECREASE)INCREASE IN CASH (760,000) 576,000
CASH AT BEGINNING OF PERIOD 2,364,000 1,459,000
----------- -----------
CASH AT END OF PERIOD $ 1,604,000 $ 2,035,000
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
SEPTEMBER 30, 1998
BASIS OF PRESENTATION
- ---------------------
1) The accompanying unaudited financial statements, in the opinion of
management, include all adjustments (consisting of normal recurring
accruals) necessary to present fairly the results of operations and
financial position of the Company for the periods indicated. However,
certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements,
schedules, and notes thereto included in the Company's annual report on
Form 10-K for the fiscal year ended March 31, 1998.
2) Earnings per share of common stock are based on weighted average number
of shares outstanding during each period.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Gross revenue for the first six months of fiscal 1999 was $20,281,000 as
compared to gross revenue of $18,438,000 for the first six months of fiscal
1998. This 10% increase occurred primarily in the transportation,
aerospace/defense, and institutional programs. Work on several large new
projects in these areas began after the second quarter of fiscal 1998. Net
service revenues increased 13% to $14,809,000 in the first six months of fiscal
1999 from $13,096,000 in the first six months of fiscal 1998 as a result of the
gross revenue increases mentioned above. Gross revenue for the second quarter of
fiscal 1999 was $10,043,000 as compared to gross revenue of $8,924,000 for the
second quarter of fiscal 1998. This 13% increase occurred primarily in the
transportation and institutional programs. Work on several large new projects in
these areas began after the second quarter of fiscal 1998. Net service revenues
increased 17% to $7,469,000 in the second quarter of fiscal 1999 from $6,386,000
in the second quarter of fiscal 1998 as a result of the gross revenue increases
mentioned above.
Cost of services represents direct labor costs associated with the generation of
net service revenues. Cost of services for the first six months of fiscal 1999
was $5,694,000, representing an 8% increase from the same period for fiscal
1998. Expressed as a percentage of net service revenue, cost of services
improved to 38% for the first six months of fiscal 1999 from 40% for the first
six months of fiscal 1998. As a result of the increase in revenues, gross profit
<PAGE>
increased 16% to $9,115,000 in the first six months of fiscal 1999 from
$7,828,000 for the first six months of fiscal 1998. Cost of services for the
second quarter of fiscal 1999 was $2,838,000, representing an 11% increase from
the same period for fiscal 1998. Expressed as a percentage of net service
revenue, cost of services also improved to 38% for the second quarter of fiscal
1999 from 40% for the second quarter of fiscal 1998. As a result of the increase
in revenues, gross profit increased 21% to $4,631,000 in the second quarter of
fiscal 1999 from $3,829,000 for the second quarter of fiscal 1998.
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. SG&A expenses for the first six months
of fiscal 1999 were $8,931,000 as compared to $7,427,000 for the first six
months of fiscal 1998. This 20% increase was due primarily to an increase in
labor costs as a result of a net 10% increase in personnel. Increased marketing
and proposal efforts resulted in a lower project utilization (labor charged to
cost of services). The acquisition of an eleven person architectural firm in
Miami attributed to increases in expenses such as travel, payroll and benefits,
and goodwill amortization. In addition, rent expense increased due to 1) the
relocation of the Ft. Myers and Orlando offices into larger space to accommodate
growth and 2) the expansion of the Company into Flint, MI, and Houston, TX..
Increases in telephone and related annual maintenance fees, leased computer
expense, annual software license fees, consulting, travel, and recruiting also
accounted for the change.
SG&A expenses for the second quarter of fiscal 1999 were $4,558,000 as compared
to $3,644,000 for the second quarter of fiscal 1998. As described above, this
25% increase was due primarily to increases in labor costs related to the
Company's internal growth and the acquisition of the firm in Miami. The increase
in marketing and proposal efforts also resulted in a lower project utilization
(labor charged to cost of services) for the second quarter of fiscal '99 from
the second quarter of fiscal '98. Increases were experienced in rent expense,
telephone and related annual maintenance fees, leased computer expense, annual
software license fees, consulting, travel, and recruiting costs.
Income before income taxes was $237,000 for the first six months of fiscal 1999
compared to $451,000 for the same period of fiscal 1998. Net income for the
first six months of fiscal 1999 was $116,000 compared to $249,000 for the first
six months of fiscal 1998. These 47% and 53% decreases were due to the increase
in operating expenses as discussed above. Income before income taxes was $91,000
for the second quarter of fiscal 1999 compared to $214,000 for the same period
of fiscal 1998. Net income for the second quarter of fiscal 1999 was $36,000
compared to $117,000 for the second quarter of fiscal 1998. These 57% and 69%
decreases were due to the increase in operating expenses as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of September 30, 1998 the Company had cash of $1,604,000. The Company has in
place a revolving line of credit which provides for borrowing up to $2,000,000.
The Company also has a committed credit facility of $2,000,000 which may be used
for the acquisition or merger of other architectural/engineering companies.
There were no borrowings outstanding under either borrowing agreement at
September 30, 1998. The company believes that its existing financial resources,
<PAGE>
together with its cash flow from operations and its unused lines of credit, will
provide sufficient capital to fund its operations for the foreseeable future.
On May 8, 1998, the Company acquired all of the outstanding shares of Lemuel
Ramos and Associates, Inc., an eleven person architectural firm located in
Miami, Florida. The Company paid cash of $387,000 and signed a $300,000 note
payable to obtain the company. The acquisition has been accounted for using the
purchase method of accounting, and, accordingly, the purchase price has been
allocated to the assets purchased and the liabilities assumed based upon the
fair market values at the date of acquisition. The excess of the purchase price
over the fair values of the net assets was $708,000 and has been recorded as
goodwill, which is being amortized on a straight-line basis over 15 years. The
net purchase price was allocated as follows:
Accounts receivable $ 46,000
Fixed assets 21,000
Goodwill 708,000
Liabilities ( 88,000)
-----------
Purchase price $ 687,000
===========
YEAR 2000
- ---------
State of Readiness:
The Company is in process of preparing its computer systems and applications for
the Year 2000. This process involves developing a plan for the Year 2000 issue.
It includes identifying and communicating with external service providers to
ensure that they are taking the appropriate action to remedy their Year 2000
issues, as well as modifying or replacing certain hardware and software
maintained by the Company. Most of the Company's systems (primarily IT) were
purchased from vendors who have represented that these systems will not be
affected by the change of century beginning Jan.1, 2000. The Company maintains
contact with third party vendors to monitor their progress with Year 2000
issues. Management expects to have substantially all of its currently identified
system and application changes completed in mid 1999.
The Company has been informed that its computer applications related to the
development and processing of architectural and engineering documents are not
date-driven and will not be affected.
The Company has identified three material operating systems that may be affected
by the Year 2000 issue. They are the general ledger accounting system (including
billings), the third party payroll service, and telecommunications systems.
Upgrades related to the general ledger accounting software and hardware have
been in process and are expected to be able to be tested in early 1999. The
Company expects to have its general ledger system tested by April 1, 1999 as
this is the beginning of the Company's fiscal 2000 year. The third party payroll
service states that its systems are not expected to experience year 2000 related
problems and has disclosed this in its recent 10K filing. Finally, the Company
has been given assurances by its third party telecommunication providers that
there will be no interruption in telecommunications resulting from theYear 2000
issue.
<PAGE>
Associated Costs:
The Company expects that the principal costs will be those associated with
testing of its computer applications. The total cost to the Company of these
Year 2000 activities has not been and is not anticipated to be material to its
financial position or results of operations in any given year. These costs and
completion dates are based on management's best estimates, which were derived
utilizing numerous assumptions of future events including third party
modification plans. There can be no assurances that these estimates will be
achieved.
Risks:
The risks associated with a failure of systems to respond correctly to the Year
2000 are: 1) delays in billings and subsequent cash receipts, 2) delays in
production of architectural/engineering documents due to telecommunication and
other problems between offices and clients (wide area network file sharing and
transmission), and 3) potential risk due to inability to adequately recognize
revenue and related expenses. In addition, there can be no assurances that there
will not be material litigation brought against the Company for Year 2000
related issues.
Contingency Plans:
In the event that the materially-identified systems fail to respond correctly to
the Year 2000 applications, the Company has established various contingency
plans to maintain operations. For general ledger and billing systems, such
contingency plans include maintaining the general ledger with a 1999 date or
manual processing of records. Payroll services could be processed through the
general ledger or manually processed. Architectural and engineering document
production could be developed independently in each office and delivered to
respective parties by mail.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on July
24, 1998. The matters voted on at the Annual Meeting (as
described in the Company's definitive proxy material dated
June 20, 1998 previously filed with the Commission) were as
follows:
<TABLE>
<CAPTION>
(1) Proposal to elect eight directors to serve until next
year's Annual Meeting of Shareholders.
Votes Votes Votes
Nominees For Against Withheld
-------- --- ------- --------
<S> <C> <C> <C>
Leerie T. Jenkins 380,905 0 0
David K. Robertson 380,905 0 0
Charles W. Gregg 379,333 0 1,572
Darold F. Cole 380,905 0 0
J. Ronald Ratliff 380,905 0 0
David E. Thomas 380,905 0 0
Alexander P. Zechella 380,905 0 0
R. Ray Goode 380,905 0 0
</TABLE>
(2) Proposal to ratify the appointment of Deloitte & Touche
LLP as independent public accountants of the Company for the
fiscal year ending March 31, 1999.
380,587 Votes For -0- Votes Against 318 Abstain
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule. This schedule
reports certain financial data in electronic format
for Electronic Data Gathering and Retrieval (EDGAR)
purposes only. This exhibit is not included in this
conforming paper filing.
(b) There were no Form 8-K reports filed during the
quarter for which this report is filed.
<PAGE>
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.
Date: November 10, 1998 REYNOLDS, SMITH AND HILLS, INC.
By /s/ Leerie T. Jenkins, Jr.
Leerie T. Jenkins, Jr.
Chairman of the Board
and Chief Executive Officer
(Principal Executive
Officer)
By /s/ David K. Robertson
David K. Robertson
Executive Vice President,
Secretary, Treasurer, Chief
Financial Officer and Director
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 1,604,000
<SECURITIES> 0
<RECEIVABLES> 8,710,000
<ALLOWANCES> 172,000
<INVENTORY> 0
<CURRENT-ASSETS> 10,463,000
<PP&E> 6,428,000
<DEPRECIATION> 4,190,000
<TOTAL-ASSETS> 14,258,000
<CURRENT-LIABILITIES> 7,271,000
<BONDS> 200,000
0
0
<COMMON> 5,000
<OTHER-SE> 6,082,000
<TOTAL-LIABILITY-AND-EQUITY> 14,258,000
<SALES> 0
<TOTAL-REVENUES> 20,281,000
<CGS> 0
<TOTAL-COSTS> 11,166,000
<OTHER-EXPENSES> 8,858,000
<LOSS-PROVISION> 10,000
<INTEREST-EXPENSE> 10,000
<INCOME-PRETAX> 237,000
<INCOME-TAX> 121,000
<INCOME-CONTINUING> 116,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 116,000
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
</TABLE>
