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, 1999
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, 1999 was 448,000 shares.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
REYNOLDS, SMITH AND HILLS, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
September 30 September 30
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Gross Revenue $ 22,602,000 $ 20,281,000 $ 11,352,000 $ 10,043,000
Subcontract and Other
Direct Costs 4,967,000 5,472,000 2,355,000 2,574,000
------------ ------------ ------------ ------------
NET SERVICE REVENUE 17,635,000 14,809,000 8,997,000 7,469,000
Cost of Services 6,890,000 5,694,000 3,499,000 2,838,000
------------ ------------ ------------ ------------
GROSS PROFIT 10,745,000 9,115,000 5,498,000 4,631,000
Selling, General and
Administrative Expenses 10,313,000 8,931,000 5,266,000 4,558,000
------------ ------------ ------------ ------------
OPERATING INCOME 432,000 184,000 232,000 73,000
OTHER INCOME (EXPENSE):
Interest and other income 24,000 63,000 12,000 24,000
Interest expense (29,000) (10,000) (21,000) (6,000)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 427,000 237,000 223,000 91,000
INCOME TAX EXPENSE 185,000 121,000 94,000 55,000
------------ ------------ ------------ ------------
NET INCOME $ 242,000 $ 116,000 $ 129,000 $ 36,000
============ ============ ============ ============
BASIC EARNINGS PER SHARE $ .54 $ .25 $ .29 $ .08
============ ============ ============ ============
AVERAGE COMMON SHARES
OUTSTANDING 448,000 460,000 448,000 460,000
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
September 30, March 31,
1999 1999
ASSETS ----------- -----------
- ------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 130,000 $ 68,000
Accounts receivable, net of allowance
for doubtful accounts of $165,000
and $181,000 6,484,000 5,392,000
Unbilled service revenue 4,706,000 4,281,000
Prepaid expenses and other current assets 136,000 195,000
Deferred income taxes 206,000 206,000
----------- -----------
Total current assets 11,662,000 10,142,000
Property and equipment, net 2,528,000 2,294,000
Other assets 65,000 41,000
Identifiable intangible assets, net of
accumulated amortization of
$995,000 and $966,000 43,000 71,000
Cost in excess of net assets of acquired
business, net of accumulated
amortization of $278,000
and $243,000 1,342,000 1,378,000
----------- -----------
TOTAL ASSETS $15,640,000 $13,926,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of
long-term debt $ 753,000 $ 100,000
Accounts payable 2,204,000 2,393,000
Accrued payroll 874,000 792,000
Accrued vacation pay 357,000 360,000
Accrued incentive compensation 230,000 398,000
Accrued expenses 975,000 953,000
Unearned service revenue 2,783,000 1,639,000
----------- -----------
Total current liabilities 8,176,000 6,635,000
Long-term debt 100,000 200,000
Deferred Income Taxes 170,000 170,000
Other Liabilities 442,000 461,000
----------- -----------
Total liabilities 8,888,000 7,466,000
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 4,000,000
shares authorized, 448,000 and 444,000
issued and outstanding 4,000 4,000
Paid-in capital 3,570,000 3,520,000
Retained Earnings 3,178,000 2,936,000
----------- -----------
Total shareholders' equity 6,752,000 6,460,000
----------- -----------
$15,640,000 $13,926,000
=========== ===========
</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
1999 1998
----------- -----------
OPERATING ACTIVITIES:
Net income $ 242,000 $ 116,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 455,000 389,000
Loss on disposal of fixed assets 8,000 3,000
Deferred rent charges (31,000) (31,000)
Change in operating assets and liabilities:
Accounts receivable and unbilled
service revenue (1,517,000) (699,000)
Other assets and prepaid expenses 35,000 126,000
Accounts payable and accrued expenses (194,000) 223,000
Unearned service revenue 1,144,000 306,000
----------- -----------
Net cash provided by operating activities 142,000 433,000
----------- -----------
INVESTING ACTIVITIES:
Capital expenditures (636,000) (756,000)
Purchase of subsidiary -- (387,000)
Proceeds from sale of fixed assets 3,000 4,000
----------- -----------
Net cash used by investing activities (633,000) (1,139,000)
----------- -----------
FINANCING ACTIVITIES:
Repayments of debt (100,000) (55,000)
Net increase in credit line payable to bank 653,000 --
Net proceeds from issuance of common stock -- 1,000
----------- -----------
Net cash provided (used) by financing activities 553,000 (54,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH 62,000 (760,000)
CASH AT BEGINNING OF PERIOD 68,000 2,364,000
----------- -----------
CASH AT END OF PERIOD $ 130,000 $ 1,604,000
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
September 30, 1999
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, 1999.
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 2000 was $22,602,000 as
compared to gross revenue of $20,281,000 for the first six months of fiscal
1999. This 11% increase occurred primarily in the transportation, aviation, and
institutional programs. Sales in these programs have been strong in both the
current and last fiscal year. Net service revenues increased 19% to $17,635,000
in the first six months of fiscal 2000 from $14,809,000 in the first six months
of fiscal 1999 as a result of the gross revenue increases mentioned above and a
9% decrease in subconsultant costs. Gross revenue for the second quarter of
fiscal 2000 was $11,352,000 as compared to gross revenue of $10,043,000 for the
second quarter of fiscal 1999. This 13% increase occurred primarily in the
transportation, aviation, and aerospace/defense programs. Net service revenues
increased 20% to $8,997,000 in the second quarter of fiscal 2000 from $7,469,000
in the second quarter of fiscal 1999 as a result of the gross revenue increases
mentioned above and a 9% decrease in subconsultant costs.
Cost of services represents direct labor costs associated with the generation of
net service revenue. Cost of services for the first six months of fiscal 2000
was $6,890,000, representing a 21% increase from the same period for fiscal
1999. This increase was due to the addition of personnel to handle the increased
workload. Expressed as a percentage of net service revenue, cost of services
remained consistent at approximately 39% for the first six months of both fiscal
2000 and 1999. As a result, gross profit also remained consistent at 61% of net
service revenue. Cost of services for the second quarter of fiscal 2000 was
$3,499,000, representing a 23% increase from the same period for fiscal 1999.
This increase was due to the addition of personnel to handle the increased
workload.
<PAGE>
Expressed as a percentage of net service revenue, cost of services remained
consistent at 39% and 38%, respectively, for the second quarters of both fiscal
2000 and 1999. As a result, gross profit remained consistent at 61% and 62%,
respectively, of net service revenue.
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 2000 were $10,313,000 as compared to $8,931,000 for the first six
months of fiscal 1999. This 15% increase was due primarily to an increase in
labor costs (both addition of personnel and salary increases, and related
benefits). In addition, rent expense increased due to: 1) the relocation of the
Orlando office in fiscal 1999 into larger space to accommodate growth and 2) new
offices in Miami, Michigan, Texas, and Illinois also in fiscal 1999. Increases
in recruiting and employee relocation, depreciation, office supplies,
communication, professional fees related to project litigation, and incentive
compensation expenses also accounted for the change.
SG&A expenses for the second quarter of fiscal 2000 were $5,266,000 as compared
to $4,558,000 for the second quarter of fiscal 1999. This 16% increase was due
primarily to an increase in labor costs (both addition of personnel and salary
increases, and related benefits). In addition, rent expense increased due to new
offices in Miami, Michigan, Texas, and Illinois. Increases in recruiting and
employee relocation, communication, professional fees related to project
litigation, and incentive compensation expenses also accounted for the change
between quarters.
Income before income taxes was $427,000 for the first six months of fiscal 2000
compared to $237,000 for the same period of fiscal 1999. Net income for the
first six months of fiscal 2000 was $242,000 compared to $116,000 for the first
six months of fiscal 1999. These 80% and 109% respective increases were due to
the increase in net service revenue as discussed above. Income before income
taxes was $223,000 for the second quarter of fiscal 2000 compared to $91,000 for
the same period of fiscal 1999. Net income for the second quarter of fiscal 2000
was $129,000 compared to $36,000 for the second quarter of fiscal 1999. These
145% and 258% respective increases were due to the increase in net service
revenue as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999 the Company had cash of $130,000 with $1,347,000 of
borrowings available under its revolving line of credit. Borrowings on the line
of credit were used to help fund Company growth. 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. The Company believes, based
on information currently available, that its existing financial resources,
together with its cash flow from operations and its unused amounts under its
line of credit, will provide sufficient capital to fund its operations for the
foreseeable future. A variety of factors could cause actual results to differ
materially from expected results. All debt covenants have been met.
<PAGE>
YEAR 2000
The following Year 2000 disclosure contains forward-looking statements which
express anticipated results based on information currently available. However, a
variety of factors, including those referred to under "Risks" below, could cause
actual results to differ materially from expected results.
State of Readiness:
The Company has been in the process of preparing its computer systems and
applications for the Year 2000. This process involves developing and acting on a
plan for the Year 2000 issue. It includes identifying and communicating with
external service providers to ascertain what steps they are taking 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 information technology
systems were purchased from vendors who have represented that these systems will
not be affected by the change of century beginning January 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 by November 15, 1999.
The Company has been informed by its third party vendors, and has also
internally ascertained, that its computer applications related to the
development and processing of architectural and engineering documents are not
date-driven and will not be affected by Year 2000 issues. In addition, hardware
supporting these applications has already been upgraded to respond correctly to
the Year 2000 issue. These upgrades have been in process over the last few years
as part of the Company's ongoing technological advancements.
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 completed. The Company is currently in its fiscal year 2000 and the general
ledger system, including billings, is functioning properly. 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 and subsequent 10Q
filings. Upgrades for hardware and software related to the payroll service have
been made. Upgrades to the Company's main and branch offices telecommunications
systems are in process and are also expected to be completed by November 15,
1999. Finally, the Company has been given assurances by its third party
telecommunication hardware and service providers that there will be no
interruption in telecommunications resulting from the Year 2000 issue.
The Company's primary non-information technology systems are those related to
the buildings in which the Company leases space. These include, but are not
limited to, heating and air conditioning systems, elevators, and security access
systems. The owners of the properties have represented to the Company that the
systems should now be able to respond correctly to the Year 2000 issue. Any risk
associated with the failure of these systems is not expected to be material to
the Company's business.
<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 delays in production of architectural/engineering documents due to
hardware, software, telecommunication or other problems between offices and
clients (wide area network file sharing and transmission). In addition, to the
extent that the Company's material vendors, subconsultants, customers, and
financial institutions, experience material adverse effects from Year 2000
issues, the Company's own operations may be affected. Various factors, many of
which are beyond the Company's control, could cause actual plans and results to
differ materially from those contemplated by management. Based on management's
current assessment and estimates, the Company does not believe that the Year
2000 issue will have a material impact on its business, financial condition or
operating results. However, there can be no assurance that the failure of any
such system will not have a material adverse effect on or result in material
litigation brought against the Company.
Contingency Plans:
In the event that the material core systems fail to function properly given the
Year 2000 problems, the Company has established various contingency plans to
maintain operations. Payroll services could be processed through the general
ledger or processed manually. 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
30, 1999. The matters voted on at the Annual Meeting (as
described in the Company's definitive proxy material dated
June 21, 1999 previously filed with the Commission) were as
follows:
(1) Proposal to elect eight directors to serve until next
year's Annual Meeting of Shareholders.
<TABLE>
<CAPTION>
Votes Votes Votes
Nominees For Against Withheld
-------- --- ------- --------
<S> <C> <C> <C>
Leerie T. Jenkins 348,672 0 0
David K. Robertson 348,672 0 0
Darold F. Cole 348,672 0 0
J. Ronald Ratliff 348,672 0 0
David E. Thomas 348,672 0 0
R. Ray Goode 348,672 0 0
James W. Apthorp 348,672 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, 2000.
348,684 Votes For -0- Votes Against 2 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 copies
distributed to shareholders and others.
(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 8, 1999 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,
Chief Operating Officer and
Director
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 130,000
<SECURITIES> 0
<RECEIVABLES> 11,355,000
<ALLOWANCES> 165,000
<INVENTORY> 0
<CURRENT-ASSETS> 11,662,000
<PP&E> 6,989,000
<DEPRECIATION> 4,461,000
<TOTAL-ASSETS> 15,640,000
<CURRENT-LIABILITIES> 8,176,000
<BONDS> 100,000
0
0
<COMMON> 4,000
<OTHER-SE> 6,748,000
<TOTAL-LIABILITY-AND-EQUITY> 15,640,000
<SALES> 0
<TOTAL-REVENUES> 22,602,000
<CGS> 0
<TOTAL-COSTS> 11,857,000
<OTHER-EXPENSES> 10,289,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,000
<INCOME-PRETAX> 427,000
<INCOME-TAX> 185,000
<INCOME-CONTINUING> 242,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 242,000
<EPS-BASIC> 0.54
<EPS-DILUTED> 0.54
</TABLE>
