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 June 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 June 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)
THREE MONTHS ENDED JUNE 30
1999 1998
------------- -------------
Gross Revenue $ 11,251,000 $ 10,238,000
Subcontract and Other
Direct Costs 2,612,000 2,898,000
------------ ------------
NET SERVICE REVENUE 8,639,000 7,340,000
Cost of Services 3,392,000 2,856,000
------------ ------------
GROSS PROFIT 5,247,000 4,484,000
Selling, General and
Administrative Expenses 5,047,000 4,373,000
------------ ------------
OPERATING INCOME 200,000 111,000
OTHER INCOME (EXPENSE):
Interest and other income 12,000 39,000
Interest expense (8,000) (4,000)
------------ ------------
INCOME BEFORE INCOME TAXES 204,000 146,000
INCOME TAX EXPENSE 90,000 66,000
------------ ------------
NET INCOME $ 114,000 $ 80,000
============ ============
BASIC EARNINGS PER SHARE $ .25 $ .17
============ ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 448,000 460,000
============ ============
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
REYNOLDS, SMITH AND HILLS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
June 30, March 31,
1999 1999
----------- -----------
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash $ 740,000 $ 68,000
Accounts receivable, net of allowance
for doubtful accounts of $165,000
and $181,000 5,975,000 5,392,000
Unbilled service revenue 4,647,000 4,281,000
Prepaid expenses and other current assets 121,000 195,000
Deferred income taxes 206,000 206,000
----------- -----------
Total current assets 11,689,000 10,142,000
Property and equipment, net 2,415,000 2,294,000
Other assets 67,000 41,000
Identifiable intangible assets, net of
accumulated amortization of
$981,000 and $966,000 57,000 71,000
Cost in excess of net assets of acquired
business, net of accumulated
amortization of $260,000
and $243,000 1,360,000 1,378,000
----------- -----------
TOTAL ASSETS $15,588,000 $13,926,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Notes payable and current portion of
long-term debt $ 1,392,000 $ 100,000
Accounts payable 2,618,000 2,393,000
Accrued payroll 418,000 792,000
Accrued vacation pay 400,000 360,000
Accrued incentive compensation 518,000 398,000
Accrued expenses 712,000 953,000
Unearned service revenue 2,177,000 1,639,000
----------- -----------
Total current liabilities 8,235,000 6,635,000
Long-term debt 100,000 200,000
Deferred Income Taxes 170,000 170,000
Other Liabilities 446,000 461,000
----------- -----------
Total liabilities 8,951,000 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 3,583,000 3,520,000
Retained Earnings 3,050,000 2,936,000
----------- -----------
Total shareholders' equity 6,637,000 6,460,000
----------- -----------
$15,588,000 $13,926,000
=========== ===========
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE THREE MONTHS ENDED JUNE 30
1999 1998
---------- -----------
OPERATING ACTIVITIES:
Net income $ 114,000 $ 80,000
Adjustments to reconcile net income to
net cash used by operating
activities:
Depreciation and amortization 239,000 195,000
Deferred rent charges (16,000) (16,000)
Change in operating assets and liabilities:
Accounts receivable and unbilled
service revenue (949,000) (1,368,000)
Other assets and prepaid expenses 48,000 145,000
Accounts payable and accrued expenses (167,000) 420,000
Unearned service revenue 538,000 509,000
----------- -----------
Net cash used by operating activities (193,000) (35,000)
----------- -----------
INVESTING ACTIVITIES:
Capital expenditures (327,000) (289,000)
Purchase of subsidiary -- (335,000)
----------- -----------
Net cash used by investing activities (327,000) (624,000)
----------- -----------
FINANCING ACTIVITIES:
Repayments of debt (100,000) (55,000)
Net increase in credit line payable to bank 1,292,000 --
----------- -----------
Net cash provided (used) by financing activities 1,192,000 (55,000)
----------- -----------
NET INCREASE (DECREASE) IN CASH 672,000 (714,000)
CASH AT BEGINNING OF PERIOD 68,000 2,364,000
----------- -----------
CASH AT END OF PERIOD $ 740,000 $ 1,650,000
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
REYNOLDS, SMITH AND HILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 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 quarter of fiscal 2000 was $11,251,000 as compared
to gross revenue of $10,238,000 for the first quarter of fiscal 1999. This 10%
increase occurred primarily in the transportation, aviation, and institutional
programs. Sales in these programs have been strong in the last fiscal year. Net
service revenues increased 18% to $8,639,000 in the first quarter of fiscal 2000
from $7,340,000 in the first quarter of fiscal 1999 as a result of the gross
revenue increases mentioned above and a 10% 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 quarter of fiscal 2000 was
$3,392,000, representing a 19% increase from the same period for fiscal 1999.
This 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 39% for the first quarters of both fiscal 2000 and 1999. As a
result, gross profit also remained consistent at 61% 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 quarter of
fiscal 2000 were $5,047,000 as compared to $4,373,000 for the first quarter 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, FL, Michigan, Texas, and Illinois also in fiscal 1999. Increases in
office supplies, recruiting and employee relocation, reprographic, and
depreciation expenses also accounted for the change.
<PAGE>
Income before income taxes was $204,000 for the first quarter of fiscal 2000
compared to $146,000 for the same period of fiscal 1999. Net income for the
first quarter of fiscal 2000 was $114,000 compared to $80,000 for the first
quarter of fiscal 1999. These 40% and 43% respective increases were due to the
increase in net service revenue as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
As of June 30, 1999 the Company had cash of $740,000 with $1,292,000 of
borrowings outstanding on its revolving line of credit which was used to help
fund current operations. 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. These borrowing arrangements, which are up
for renewal annually, expire September 30, 1999. The Company believes, based on
information currently available, that its existing financial resources, together
with its cash flow from operations and its unused amounts on its line of credit,
will provide sufficient capital to fund its operations for the foreseeable
future. All debt covenants have been met.
YEAR 2000
- ---------
State of Readiness:
The Company has been in 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 in the second quarter of
fiscal 2000 (September 30, 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.
<PAGE>
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 the second
quarter of fiscal 2000. 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 be able to respond correctly to the Year 2000 issue in the second
quarter of fiscal 2000. Any risk associated with the failure of these systems,
is not expected to be material to the Company's business.
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 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.
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: August 4, 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)
<PAGE>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 740,000
<SECURITIES> 0
<RECEIVABLES> 10,787,000
<ALLOWANCES> 165,000
<INVENTORY> 0
<CURRENT-ASSETS> 11,689,000
<PP&E> 6,766,000
<DEPRECIATION> 4,351,000
<TOTAL-ASSETS> 15,588,000
<CURRENT-LIABILITIES> 8,235,000
<BONDS> 100,000
0
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<COMMON> 4,000
<OTHER-SE> 6,633,000
<TOTAL-LIABILITY-AND-EQUITY> 15,588,000
<SALES> 0
<TOTAL-REVENUES> 11,251,000
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<TOTAL-COSTS> 6,004,000
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<INCOME-TAX> 90,000
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