Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 2003
COMMISSION FILE NO. 1-10147
THE REYNOLDS AND REYNOLDS COMPANY
OHIO 31-0421120
(State of incorporation) (IRS Employer Identification No.)
ONE REYNOLDS WAY
DAYTON, OHIO 45430
(Address of principal executive offices)
(937) 485-2000
(Telephone No.)
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 [ ]
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [ ]
On December 31, 2003, 66,107,235 Class A common shares and 15,000,000 Class B
common shares were outstanding.
THE REYNOLDS AND REYNOLDS COMPANY
TABLE OF CONTENTS
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Consolidated Income
For the Three Months Ended December 31, 2003 and 2002 3
Condensed Consolidated Balance Sheets
As of December 31, 2003 and September 30, 2003 4
Condensed Statements of Consolidated Cash Flows
For the Three Months Ended December 31, 2003 and 2002 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
For the Three Months Ended December 31, 2003 and 2002 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
(See the caption entitled "Market Risks" included in the Management's
Discussion and Analysis of Financial Condition and Results of Operations)
Item 4. Controls and Procedures 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
2
THE REYNOLDS AND REYNOLDS COMPANY
STATEMENTS OF CONSOLIDATED INCOME
FOR THE THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002
(In thousands except per share data)
Three Months
2003 2002
--------- ---------
Net Sales and Revenues
Software Solutions $ 142,506 $ 136,319
Services 57,809 60,061
Documents 39,688 40,628
Financial services 8,400 9,640
--------- ---------
Total net sales and revenues 248,403 246,648
--------- ---------
Cost of Sales
Software Solutions 45,011 43,593
Services 43,080 44,732
Documents 19,808 17,935
Financial services 1,917 2,534
--------- ---------
Total cost of sales 109,816 108,794
--------- ---------
Gross Profit 138,587 137,854
Selling, General and Administrative Expenses 102,628 95,997
--------- ---------
Operating Income 35,959 41,857
--------- ---------
Other Charges (Income)
Interest expense 1,340 1,521
Interest income (657) (871)
Other (948) (996)
--------- ---------
Total other charges (income) (265) (346)
--------- ---------
Income Before Income Taxes 36,224 42,203
Provision for Income Taxes 12,402 16,630
--------- ---------
Net Income $ 23,822 $ 25,573
========= =========
Basic Earnings Per Common Share
Net Income $ 0.35 $ 0.37
Average Number of Common Shares Outstanding 67,243 69,188
Diluted Earnings Per Common Share
Net Income $ 0.34 $ 0.36
Average Number of Common Shares Outstanding 69,446 70,962
Cash Dividends Declared Per Common Share $ 0.11 $ 0.11
See Notes to Condensed Consolidated Financial Statements.
3
THE REYNOLDS AND REYNOLDS COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2003 AND SEPTEMBER 30, 2003
(In thousands)
12/31/03 9/30/03
----------- -----------
AUTOMOTIVE SOLUTIONS ASSETS
Current Assets
Cash and equivalents $ 125,106 $ 105,829
Accounts receivable 116,836 118,694
Other accounts receivable 12,583 21,063
Inventories 14,621 12,432
Other current assets 36,450 31,673
----------- -----------
Total current assets 305,596 289,691
Property, Plant and Equipment, less accumulated depreciation of
$126,686 at 12/31/03 and $156,674 at 9/30/03 183,810 184,691
Goodwill 50,127 41,728
Software Licensed to Customers 99,105 94,472
Acquired Intangible Assets 37,505 37,731
Other Assets 93,841 98,029
----------- -----------
Total Automotive Solutions Assets 769,984 746,342
----------- -----------
FINANCIAL SERVICES ASSETS
Cash 565 722
Finance Receivables 384,459 394,292
Other Assets 513 480
----------- -----------
Total Financial Services Assets 385,537 395,494
----------- -----------
TOTAL ASSETS $ 1,155,521 $ 1,141,836
=========== ===========
AUTOMOTIVE SOLUTIONS LIABILITIES
Current Liabilities
Accounts payable $ 40,742 $ 45,917
Accrued liabilities 78,634 64,162
Deferred revenues 31,606 33,704
----------- -----------
Total current liabilities 150,982 143,783
Long-Term Debt 105,524 106,912
Other Liabilities 122,611 118,452
----------- -----------
Total Automotive Solutions Liabilities 379,117 369,147
----------- -----------
FINANCIAL SERVICES LIABILITIES
Notes Payable 200,137 198,768
Other Liabilities 100,767 99,010
----------- -----------
Total Financial Services Liabilities 300,904 297,778
----------- -----------
SHAREHOLDERS' EQUITY
Capital Stock 312,300 299,779
Accumulated Other Comprehensive Losses (29,844) (32,446)
Retained Earnings 193,044 207,578
----------- -----------
Total Shareholders' Equity 475,500 474,911
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,155,521 $ 1,141,836
=========== ===========
See Notes to Condensed Consolidated Financial Statements.
4
THE REYNOLDS AND REYNOLDS COMPANY
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002
(In thousands)
2003 2002
--------- ---------
AUTOMOTIVE SOLUTIONS
Cash Flows Provided By Operating Activities $ 56,570 $ 8,790
--------- ---------
Cash Flows Provided By (Used For) Investing Activities
Business combinations (11,625) (11,666)
Capital expenditures (18,115) (9,505)
Net proceeds from asset sales 9,727 145
Capitalization of software licensed to customers (5,079)
Repayments from Financial Services 8,176 4,973
--------- ---------
Net cash flows used for investing activities (11,837) (21,132)
--------- ---------
Cash Flows Provided By (Used For) Financing Activities
Principal payments on debt (5,275) (6,061)
Capital stock issued 13,702 6,648
Capital stock repurchased (36,007) (40,910)
--------- ---------
Net cash flows used for financing activities (27,580) (40,323)
--------- ---------
Effect of Exchange Rate Changes on Cash 2,124 115
--------- ---------
Increase (Decrease) in Cash and Equivalents 19,277 (52,550)
Cash and Equivalents, Beginning of Period 105,829 155,295
--------- ---------
Cash and Equivalents, End of Period $ 125,106 $ 102,745
========= =========
FINANCIAL SERVICES
Cash Flows Provided By Operating Activities $ 5,548 $ 6,681
--------- ---------
Cash Flows Provided By (Used For) Investing Activities
Finance receivables originated (36,696) (36,217)
Collections on finance receivables 37,798 42,152
--------- ---------
Net cash flows provided by investing activities 1,102 5,935
--------- ---------
Cash Flows Provided By (Used For) Financing Activities
Additional borrowings 5,399
Principal payments on debt (4,030) (7,085)
Repayments to Automotive Solutions (8,176) (4,973)
--------- ---------
Net cash flows used for financing activities (6,807) (12,058)
--------- ---------
Increase (Decrease) in Cash and Equivalents (157) 558
Cash and Equivalents, Beginning of Period 722 635
--------- ---------
Cash and Equivalents, End of Period $ 565 $ 1,193
========= =========
See Notes to Condensed Consolidated Financial Statements.
5
THE REYNOLDS AND REYNOLDS COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The balance sheet as of September 30, 2003 is condensed financial information
taken from the annual audited financial statements, as restated. The interim
financial statements are unaudited. In the opinion of management, the
accompanying interim financial statements contain all significant adjustments
necessary to present fairly the company's financial position, results of
operations and cash flows for the periods presented.
(2) INVENTORIES
12/31/03 9/30/03
-------- -------
Finished products $ 13,836 $11,921
Work in process 447 295
Raw materials 338 216
-------- -------
Total inventories $ 14,621 $12,432
======== =======
(3) REORGANIZATION COSTS
On October 2, 2003, the company announced the consolidation of its automotive
Documents printing plant, located in Grand Prairie, Texas, into the company's
Celina, Ohio manufacturing facility. All employees located in Texas were offered
the opportunity to accept a position in the Ohio facility. Those not accepting
positions in Ohio were offered severance and outplacement services. Grand
Prairie documents production ceased in December 2003 and the company eliminated
73 positions. During the first quarter of fiscal year 2004, the company also
reorganized the Documents sales force, eliminating 37 positions, and eliminated
108 additional positions in Software Solutions development, Services and
administration.
The company had previously estimated that costs for severance, outplacement,
relocation and other plant consolidation efforts would total about $8,000 before
taxes or $.07 per share after taxes in the first quarter of fiscal year 2004.
During the first quarter of fiscal year 2004, the company incurred expense of
$6,246 before taxes ($3,785 or $.05 per share after taxes) and eliminated 218
positions. The company estimates the remainder of the estimated expenses,
primarily employee termination benefits, will be incurred in the second quarter
of fiscal year 2004 as remaining positions are eliminated.
The table below summarizes the reorganization costs recognized and payments made
by the company through December 31, 2003.
Software
Solutions Services Documents Total
--------- -------- --------- --------
Cost of Sales
Employee termination benefits $ 43 $ 13 $ 710 $ 766
Other direct expenses 594 594
--------- -------- --------- --------
Total cost of sales 43 13 1,304 1,360
--------- -------- --------- --------
SG&A Expenses
Employee termination benefits 1,432 974 1,072 3,478
Lease obligations 378 244 9 631
Other direct expenses 185 127 465 777
--------- -------- --------- --------
Total SG&A expenses 1,995 1,345 1,546 4,886
--------- -------- --------- --------
Total Reorganization Costs 2,038 1,358 2,850 6,246
Payments 10/1/03 - 12/31/03 (845) (1,123) (1,532) ( 3,500)
--------- -------- --------- --------
Accrued Reorganization Costs at 12/31/03 $ 1,193 $ 235 $ 1,318 $ 2,746
========= ======== ========= ========
6
(4) BUSINESS COMBINATIONS
In October 2003, the company purchased all of the outstanding shares of Incadea
AG, a provider of global automotive retailing software solutions. Privately-held
Incadea, based in Raubling, Germany, had annual revenues of about $6,000. The
purchase price of $6,181 was paid with cash from existing balances. During the
first quarter of fiscal year 2004, the company also repaid $5,046 of debt
assumed in the purchase of Incadea AG. The results of Incadea's operations have
been included in the company's financial statements since the acquisition. At
December 31, 2003, the company has recorded goodwill of $5,999 based on a
preliminary allocation of the purchase price. The company has engaged an
independent appraisal firm to determine fair values of intangible assets.
In October 2003, the company purchased the net assets of Third Coast Media, a
provider of Web and customer relationship management software to automotive
retailers. Third Coast Media, headquartered in Richardson, Texas, had annual
revenues of about $5,000. The purchase price of $5,444 was paid with cash from
existing balances. The results of Third Coast Media's operations have been
included in the company's financial statements since the acquisition. At
December 31, 2003, the company has recorded goodwill of $2,400 based on a
preliminary allocation of the purchase price. The company has engaged an
independent appraisal firm to determine fair values of intangible assets. Under
terms of the purchase agreement, the company may be required to make additional
payments over the next three years of up to $2,300, contingent on the
achievement of certain operating results of the business purchased.
(5) GOODWILL AND ACQUIRED INTANGIBLE ASSETS
GOODWILL
Software
Solutions Services Documents Totals
--------- -------- --------- -------
Balances as of September 30, 2003 $ 22,217 $ 16,634 $ 2,877 $41,728
Business Combinations 8,399 8,399
--------- -------- --------- -------
Balances as of December 31, 2003 $ 30,616 $ 16,634 $ 2,877 $50,127
========= ======== ========= =======
ACQUIRED INTANGIBLE ASSETS
Gross Accumulated Useful Life
Amount Amortization (years)
------- ------------ -----------
AS OF DECEMBER 31, 2003
Amortized intangible assets
Contractual customer relationship $33,100 $ 6,068 20
Trademarks 6,257 1,082 6-20
Other 7,790 2,502 2-15
------- ------------
Total $47,157 $ 9,652
======= ============
AS OF SEPTEMBER 30, 2003
Amortized intangible assets
Contractual customer relationship $33,100 $ 5,655 20
Customer contract 17,700 16,493 3.67
Trademarks 5,900 1,008 20
Other 6,449 2,262 3-10
------- ------------
Total $63,149 $ 25,418
======= ============
Aggregate amortization expense was $1,917 for the three months ended December
31, 2003. Estimated amortization expense for the years ended September 30, is
$3,537 in 2004, $2,300 in 2005, $2,300 in 2006, $2,300 in 2007 and $2,300 in
2008.
7
(6) FINANCING ARRANGEMENTS
AUTOMOTIVE SOLUTIONS
As of December 31, 2003, the company had outstanding interest rate swap
agreements with notional amounts of $100,000. These interest rate swap
agreements were designated as fair value hedges. The fair value of the company's
fair value derivative instruments was $5,669 at December 31, 2003 and $7,069 at
September 30, 2003 and was included in Automotive Solutions' other assets on the
condensed consolidated balance sheet. The adjustments to record the net change
in the fair value of fair value hedges and related debt during the periods
presented were recorded in income. All existing fair value hedges were 100%
effective. As a result, there was no current impact to earnings because of hedge
ineffectiveness.
FINANCIAL SERVICES
On January 22, 2004, Reyna Funding, L.L.C., a consolidated affiliate of the
company, renewed a loan funding agreement, whereby Reyna Funding, L.L.C. may
borrow up to $100,000 using finance receivables purchased from Reyna Capital
Corporation, also a consolidated affiliate of the company, as security for the
loan. The securitization allows borrowings, up to the $100,000 limit with
interest payable on a variable rate basis. This loan funding agreement is
renewable annually through January 23, 2006. As of December 31, 2003, Reyna
Funding, L.L.C. had outstanding borrowings of $100,000 under this arrangement.
As of December 31, 2003, Reyna Funding, L.L.C. had outstanding interest rate
swap agreements with notional amounts of $100,000 and Reyna Capital Corporation
had outstanding interest rate swap agreements with notional amounts of $12,750.
These interest rate swap agreements were designated as cash flow hedges. The
fair value of the company's cash flow derivative instruments was a $1,587
liability at December 31, 2003, and a $2,422 liability at September 30, 2003,
and was included in Financial Services' other liabilities on the condensed
consolidated balance sheets. The adjustments to record the net change in the
fair value of cash flow hedges during the periods presented were recorded, net
of income taxes, in other comprehensive income. Fluctuations in the fair value
of the derivative instruments are generally offset by changes in the value of
cash flows of the underlying exposure being hedged because of the high degree of
effectiveness of these cash flow hedges. In fiscal year 2004, the company
expects the amounts to be reclassified from other comprehensive income into
earnings to be immaterial to the financial statements.
(7) COMPREHENSIVE INCOME
THREE MONTHS
2003 2002
------- -------
Net income $23,822 $25,573
Foreign currency translation adjustment 2,124 115
Net unrealized gains on derivative contracts 478 166
------- -------
Comprehensive income $26,424 $25,854
======= =======
8
(8) CASH FLOW STATEMENTS
Reconciliation of net income to net cash provided by operating activities.
THREE MONTHS
2003 2002
-------- --------
AUTOMOTIVE SOLUTIONS
Net Income $ 20,857 $ 22,037
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Depreciation and amortization 11,968 8,662
Stock-based compensation expense 2,616 3,976
Deferred income taxes (2,147) 27
Deferred income taxes transferred to (from) Financial Services 322 (94)
Losses on sales of assets 622 347
Changes in operating assets and liabilities
Accounts receivable 19,962 6,819
Inventories (2,189) (3,516)
Prepaid expenses and other current assets (2,441) (1,042)
Intangible and other assets 4,237 943
Accounts payable (7,112) (6,914)
Accrued liabilities 5,813 (24,173)
Other liabilities 4,062 1,718
-------- --------
Net Cash Provided by Operating Activities $ 56,570 $ 8,790
======== ========
FINANCIAL SERVICES
Net Income $ 2,965 $ 3,536
Deferred Income Taxes 4,005 207
Deferred Income Taxes Transferred to (from) Automotive Solutions (322) 94
Changes in Receivables, Other Assets and Other Liabilities (1,100) 2,844
-------- --------
Net Cash Provided by Operating Activities $ 5,548 $ 6,681
======== ========
9
(9) BUSINESS SEGMENTS
During the first quarter of fiscal year 2004, the company changed its reporting
segments to reflect the revised organizational structure of the company. In
executing this realignment, the company changed its method of allocating certain
revenues and expenses. Prior year financial results were restated, to the extent
possible, to reflect financial results consistent with the current year.
The Software Solutions segment provides computer solutions including computer
hardware, integrated software packages, software enhancements and related
support.
The Services segment includes installation and maintenance of computer hardware,
software training and consulting services.
The Documents segment manufactures and distributes printed business forms
primarily to automotive retailers.
The Financial Services segment provides financing, principally for sales of the
company's computer solutions and services, through the company's wholly-owned
affiliates, Reyna Capital Corporation, Reyna Funding, L.L.C. and a similar
operation in Canada.
THREE MONTHS
2003 2002
----------- -----------
NET SALES AND REVENUES
Software Solutions $ 142,506 $ 136,319
Services 57,809 60,061
Documents 39,688 40,628
Financial Services 8,400 9,640
----------- -----------
Total Net Sales and Revenues $ 248,403 $ 246,648
=========== ===========
OPERATING INCOME (LOSS)
Software Solutions $ 38,869 $ 35,630
Services (11,061) (6,511)
Documents 3,266 6,879
Financial Services 4,885 5,859
----------- -----------
Total Operating Income $ 35,959 $ 41,857
=========== ===========
12/31/03 9/30/03
----------- -----------
ASSETS
Automotive Solutions $ 769,984 $ 746,342
Financial Services 385,537 395,494
----------- -----------
Total Assets $ 1,155,521 $ 1,141,836
=========== ===========
(10) CONTINGENCIES
In 2000, the company was named one of many defendants in a cost recovery lawsuit
filed by a Potentially Responsible Party (PRP) coalition in the United States
District Court for Southern District of Ohio regarding an environmental
remediation site in Dayton, Ohio. The court has ordered the parties to
participate in non-binding mediation. The company believes that the reasonably
foreseeable resolution of this matter will not have a material adverse effect on
the financial statements.
In November 2002, the FASB issued FASB Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." This Interpretation requires the company
to disclose contingent obligations under certain guarantees in both interim and
annual financial statements. In fiscal year 2000, the company sold the net
assets of its Information Solutions segment to The Carlyle Group. The Carlyle
Group renamed the business Relizon Corporation. The company became secondarily
liable under new real estate leases after being released as primary obligor for
facilities leased and paid by Relizon. As of December 31, 2003, this contingent
10
liability totaled $1,932. The majority of these leases expire in 2004. Also in
connection with the sale of these operations to The Carlyle Group, the company
remained contingently liable for a portion of long-term debt, which is
collateralized by a Relizon facility in Canada and matures in 2007. In
connection with this contingent liability, the company secured a standby letter
of credit which expires in 2007. As of December 31, 2003, the unamortized
balance on this letter of credit was $1,696.
(11) ACCOUNTING CHANGE
Effective October 1, 2003, the company elected to adopt the provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation" and began recognizing stock option expense in the
Statements of Consolidated Income. Under the fair value recognition provisions
of SFAS No. 123, stock-based compensation cost is measured at the grant date
based on the value of the award and is recognized as expense over the vesting
period. SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" provides three alternative methods for reporting this change in
accounting principle. The company elected the retroactive restatement method
which required that all periods presented be restated to reflect stock-based
compensation cost under the fair value based accounting method of SFAS No. 123
for all awards granted, modified or settled in fiscal years beginning after
December 15, 1994. Accordingly, prior year financial statements have been
restated to reflect the adoption of SFAS No. 123. For the three months ended
December 31, 2002, income before income taxes was reduced by $3,904, the
provision for income taxes was decreased by $1,229 and net income was reduced by
$2,675 (or $.04 per share). As of September 30, 2003, deferred income tax assets
were increased by $17,781, capital stock was increased by $38,538 and retained
earnings were reduced by $20,757.
(12) ACCOUNTING STANDARDS
In January 2004, the Financial Accounting Standards Board (FASB) staff issued
FASB Staff Position SFAS 106-1, "Accounting and Disclosure Requirements Related
to the Medicare Prescription Drug, Improvement and Modernization Act of 2003."
This statement permits a sponsor of a postretirement health care plan that
provides a prescription drug benefit to make a one-time election to defer
recognizing the effects of the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the "Act") until authoritative guidance on accounting
for the federal subsidy is issued or until certain other events occur. The
company has not determined whether it would need to amend its postretirement
benefit plan in order to benefit from the new legislation. The company has
elected to defer recognizing the effects of the Act until authoritative
accounting guidance is issued. Accordingly, the consolidated financial
statements do not reflect the effect of the Act, if any. Authoritative guidance,
when issued, could require the company to change previously reported
information.
In December 2003, the FASB issued SFAS No. 132 (revised 2003), "Employers'
Disclosures about Pensions and Other Postretirement Benefits an amendment of
FASB Statements No. 87, 88, and 106." This statement revises employers'
disclosures about pension plans and other postretirement plans. The provisions
of this statement are effective for the first interim period beginning after
December 15, 2003. Accordingly, the company will follow these disclosure
requirements for the quarter ended March 31, 2004.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002
(In thousands except employee and per share data)
SIGNIFICANT EVENTS
ACCOUNTING CHANGE
Effective October 1, 2003, the company elected to adopt the provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation" and began recognizing stock option expense in the
Statements of Consolidated Income. Under the fair value recognition provisions
of SFAS No. 123, stock-based compensation cost is measured at the grant date
based on the value of the award and is recognized as expense over the vesting
period. SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure" provides three alternative methods for reporting this change in
accounting principle. The company elected the retroactive restatement method
which required that all periods presented be restated to reflect stock-based
compensation cost under the fair value based accounting method of SFAS No. 123
for all awards granted, modified or settled in fiscal years beginning after
December 15, 1994. Accordingly, prior year financial statements have been
restated to reflect the adoption of SFAS No. 123. See Note 11 to the Condensed
Consolidated Financial Statements for additional disclosures about this
accounting change.
11
BUSINESS SEGMENTS
During the first quarter of fiscal year 2004, the company changed its reporting
segments to reflect the revised organizational structure of the company. In
executing this realignment, the company changed its method of allocating certain
revenues and expenses. Prior year financial results were restated to the extent
possible to reflect financial results consistent with the current year. See Note
9 to the Condensed Consolidated Financial Statements for additional disclosures
regarding business segments.
REORGANIZATION COSTS
On October 2, 2003, the company announced the consolidation of its automotive
Documents printing plant, located in Grand Prairie, Texas, into the company's
Celina, Ohio manufacturing facility. All employees located in Texas were offered
the opportunity to accept a position in the Ohio facility. Those not accepting
positions in Ohio were offered severance and outplacement services. Grand
Prairie document production operations ceased in December 2003 and 73 positions
were eliminated. During the first quarter of fiscal year 2004, the company also
reorganized the Documents sales force, eliminating 37 positions, and eliminated
108 additional positions in Software Solutions development, Services and
administration.
The company had previously estimated that costs for severance, outplacement,
relocation and other plant consolidation efforts would total about $8,000 before
taxes or $.07 per share after taxes in the first quarter of fiscal year 2004.
During the first quarter of fiscal year 2004, the company incurred expense of
$6,246 before taxes ($3,785 or $.05 per share after taxes) and eliminated 218
positions. The company estimates the remainder of the estimated expenses,
primarily employee termination benefits, will be incurred in the second quarter
of fiscal year 2004 as the remaining positions are eliminated. See Note 3 to the
Condensed Consolidated Financial Statements for additional disclosure about
these reorganization costs.
BUSINESS COMBINATIONS
In October 2003, the company purchased all of the outstanding shares of Incadea
AG, a provider of global automotive retailing software solutions. Privately-held
Incadea, based in Raubling, Germany, had annual revenues of about $6,000. The
purchase price of $6,181 was paid with cash from existing balances. During the
first quarter of fiscal year 2004, the company also repaid $5,046 of debt
assumed in the purchase of Incadea AG.
In October 2003, the company purchased the net assets of Third Coast Media, a
provider of Web and customer relationship management software to automotive
retailers. Third Coast Media, headquartered in Richardson, Texas, had annual
revenues of about $5,000. The purchase price of $5,444 was paid with cash from
existing balances. Under terms of the purchase agreement, the company may be
required to make additional payments over the next three years of up to $2,300,
contingent on the achievement of certain operating results of the business
purchased. See Note 4 to the Condensed Consolidated Financial Statements for
more information on business combinations.
RESULTS OF OPERATIONS
CONSOLIDATED SUMMARY
2003 2002 Change % Change
----------- ----------- ------- ---------
Net sales and revenues $ 248,403 $ 246,648 $ 1,755 1%
Gross profit $ 138,587 $ 137,854 $ 733 1%
% of revenues 55.8% 55.9%
SG&A expenses $ 102,628 $ 95,997 $ 6,631 7%
% of revenues 41.3% 38.9%
Operating income $ 35,959 $ 41,857 ($ 5,898) -14%
% of revenues 14.5% 17.0%
Net income $ 23,822 $ 25,573 ($ 1,751) -7%
Basic earnings per share $ 0.35 $ 0.37 ($ 0.02) -5%
Diluted earnings per share $ 0.34 $ 0.36 ($ 0.02) -6%
Consolidated net sales and revenues grew slightly in the first quarter of fiscal
year 2004 with Software Solutions, the company's largest segment, increasing
revenues 5%. This increase in revenues was partially offset by revenue declines
12
in the three smaller segments, Services, Documents and Financial Services. The
backlog of new orders for Software Solutions and Services computer systems
products and deferred revenues (orders shipped, but not yet recognized in
revenues) was approximately $47,000 at December 31, 2003, compared to $65,000 at
September 30, 2003. Gross profit increased slightly as higher Software Solutions
recurring revenues overcame higher software amortization expenses for Reynolds
Generations Series Suite and Documents plant consolidation expenses. See Note 3
to the Condensed Consolidated Financial Statements for a discussion of these
reorganization costs. SG&A expenses exceeded last year primarily because of
$4,886 of reorganization and plant consolidation expenses. Excluding these
reorganization and plant consolidation expenses, SG&A expenses were $97,742, an
increase of $1,745 or 2%. This increase resulted from higher research and
development expenses as no software development costs were capitalized in the
first quarter of fiscal year 2004. Research and development costs were
approximately $21,000 in the first quarter of fiscal year 2004, versus $18,000
last year. Operating margin was 14.5% in the first quarter of fiscal year 2004,
compared to 17.0% last year. Excluding reorganization and plant consolidation
costs of $6,246, operating margin was 17.0% of revenues for the three months
ended December 31, 2003.
The effective income tax rate was 34.2% in the first quarter of fiscal year
2004, compared to 39.4% last year. In the first quarter of fiscal year 2004, the
tax rate reflected a $1,859 reduction of income taxes, primarily related to Ohio
income tax legislation enacted during the quarter ended December 31, 2003.
Excluding the $1,859 of tax benefits, the tax rate would have been 39.4%, the
same as last year.
SOFTWARE SOLUTIONS
2003 2002 Change % Change
-------- -------- -------- --------
Net sales and revenues $142,506 $136,319 $ 6,187 5%
Gross profit $ 97,495 $ 92,726 $ 4,769 5%
% of revenues 68.4% 68.0%
SG&A expenses $ 58,626 $ 57,096 $ 1,530 3%
% of revenues 41.1% 41.9%
Operating income $ 38,869 $ 35,630 $ 3,239 9%
% of revenues 27.3% 26.1%
During the first quarter of fiscal year 2004, the company changed its reporting
segments to reflect the revised organizational structure of the company. In
executing this realignment, the company changed its method of allocating certain
revenues and expenses. See Note 9 to the Condensed Consolidated Financial
Statements for additional disclosures about segment reporting. Revenues
increased over last year in the first quarter as recurring software revenues
increased 14% while one-time hardware and software sales declined 17%. Recurring
revenues reflected the increased number of software applications supported for
ERA(R) dealer management systems, growth in Reynolds Web Solutions which is
converting to a recurring revenue model, and the January 2003 addition of
Internet Lead Management which resulted from a license agreement between the
company and Microsoft Corporation in January 2003. The company also increased
sales prices since the first quarter last year to offset inflation. One-time
hardware and software sales declined from last year primarily as a result of the
transition of Reynolds Web Solutions to a recurring revenue model (last year was
still predominately an upfront sale model) and lower sales of ERA dealer
management systems and related peripherals. Gross profit increased as a result
of the strong growth in higher margin recurring revenues. The margin impact of
the growth of recurring revenues more than offset a $3,273 increase in software
amortization expenses related to Reynolds Generations Series Suite. SG&A
expenses included $1,995 of reorganization costs. See Note 3 to the Condensed
Consolidated Financial Statements for a discussion of these reorganization
costs. Excluding these reorganization costs, SG&A expenses were $56,631 or 39.7%
of revenues. SG&A expenses reflect higher research and development expenses as
the company did not capitalize any software development costs in the first
quarter of fiscal year 2004. SG&A expenses also reflected lower selling
expenses, primarily the result of the allocation methodology among reporting
segments. Excluding the reorganization costs, operating income was $40,907 or
28.7% of revenues.
13
SERVICES
2003 2002 Change % Change
-------- -------- ------- --------
Net sales and revenues $ 57,809 $ 60,061 ($ 2,252) -4%
Gross profit $ 14,729 $ 15,329 ($ 600) -4%
% of revenues 25.5% 25.5%
SG&A expenses $ 25,790 $ 21,840 $ 3,950 18%
% of revenues 44.6% 36.3%
Operating income (loss) ($ 11,061) ($ 6,511) ($ 4,550)
% of revenues -19.1% -10.8%
During the first quarter of fiscal year 2004, the company changed its reporting
segments to reflect the revised organizational structure of the company. In
executing this realignment, the company changed its method of allocating certain
revenues and expenses. See Note 9 to the Condensed Consolidated Financial
Statements for additional disclosures about segment reporting. Services revenues
declined from last year primarily because of lower Campaign Management Services
revenues as a result of the loss of a customer in April 2003. Gross profit was
consistent with the change in revenues. SG&A expenses included $1,345 of
reorganization costs. See Note 3 to the Condensed Consolidated Financial
Statements for a discussion of these reorganization costs. Excluding the
reorganization costs, SG&A expenses were $24,445 or 42.3% and included a higher
allocation of selling expenses, primarily the impact of the change in allocation
methodology. Additionally the company incurred higher marketing costs associated
with Networkcar. Operating losses increased over last year primarily because of
higher losses in Networkcar and Campaign Management Services, reorganization
costs and the allocation of selling costs, which more than offset improvement in
Reynolds Consulting Services operations.
DOCUMENTS
2003 2002 Change % Change
------- ------- ------- --------
Net sales and revenues $39,688 $40,628 ($ 940) -2%
Gross profit $19,880 $22,693 ($2,813) -12%
% of revenues 50.1% 55.9%
SG&A expenses $16,614 $15,814 $ 800 5%
% of revenues 41.9% 39.0%
Operating income $ 3,266 $ 6,879 ($3,613) -53%
% of revenues 8.2% 16.9%
Documents sales declined from last year for the three months ended December 31,
2003, primarily because of a decrease in the volume of documents sold. Laser
forms revenues increased over last year in the first quarter; however, this
increase was more than offset by lower volumes in other product lines. The
company expects the volume of documents sold to continue to decline as advances
in technology continue. In the first quarter of fiscal year 2004, cost of sales
included $1,304 of costs associated with the consolidation of the Grand Prairie,
Texas, printing plant into the Celina, Ohio, manufacturing facility. Excluding
these plant consolidation costs, gross profit was $21,184 or 53.4% of revenues
in the first quarter of fiscal year 2004. In addition to the plant consolidation
costs, gross profit declined because of the sales decline and higher material
costs as a result of a change in the mix of products sold. SG&A expenses
included $1,546 of cost associated with the plant consolidation and reorganizing
the sales force. See Note 3 to the Condensed Consolidated Financial Statements
for a discussion of these reorganization costs. Excluding these plant
consolidation and sales reorganization costs, SG&A expenses were $15,068 or
38.0% of revenues. Operating income declined primarily because of plant
consolidation and sales reorganization costs. Excluding plant consolidation and
sales reorganization costs, operating income was $6,116 or 15.4% of revenues.
14
FINANCIAL SERVICES
2003 2002 Change % Change
------- ------- ------- --------
Net sales and revenues $ 8,400 $ 9,640 ($1,240) -13%
Gross profit $ 6,483 $ 7,106 ($ 623) -9%
% of revenues 77.2% 73.7%
SG&A expenses $ 1,598 $ 1,247 $ 351 28%
% of revenues 19.0% 12.9%
Operating income $ 4,885 $ 5,859 ($ 974) -17%
% of revenues 58.2% 60.8%
Financial Services revenues declined from last year for the three months ended
December 31, 2003, primarily because of lower average interest rates. First
quarter's gross profit declined from last year because of the revenue decline.
Interest rate spreads were 4.7% in the first quarter of fiscal year 2004,
compared to 5.2% last year. SG&A expenses increased over last year because of
higher bad debt expenses. Bad debt expenses were $750 in the first quarter of
fiscal year 2004, compared to $315 last year. Overall, operating margins
remained strong for this segment.
LIQUIDITY AND CAPITAL RESOURCES
AUTOMOTIVE SOLUTIONS CASH FLOWS (EXCLUDING FINANCIAL SERVICES)
The company's balance of cash and equivalents was $125,106 at December 31, 2003.
Cash flows from operating activities were $56,570 during the three months ended
December 31, 2003 and resulted primarily from net income, adjusted for non cash
charges such as depreciation and amortization. Accounts receivable declined from
September 30, 2003, principally because of collections of other accounts
receivables. Accounts payable declined from September 30, 2003 because of the
timing of payroll tax payments. Cash flows from operating activities were
significantly higher last year which was impacted by the timing of various
payroll and tax payments. Cash flows used for investing activities included the
company's purchases of Third Coast Media and Incadea AG for a combined $11,625.
An additional $5,046 of Incadea debt repayments is included in financing
activities. Cash flows used for investing activities also included capital
expenditures of $18,115, partially offset by proceeds from asset sales of
$9,727. Fiscal year 2004 capital expenditures (net of proceeds from asset sales)
in the ordinary course of business are anticipated to be about $40,000,
including about $20,000 for expansion of an existing office building. See the
Shareholders' Equity caption of this analysis regarding the payment of dividends
and share repurchases.
FINANCIAL SERVICES CASH FLOWS
Financial Services operating cash flows, collections on finance receivables and
additional borrowings were invested in new finance receivables primarily for the
company's computer systems, used to make scheduled debt repayments and used to
make dividend payments to Automotive Solutions.
CAPITALIZATION
The company's ratio of total debt (total Automotive Solutions debt) to
capitalization (total Automotive Solutions debt plus shareholders' equity) was
18.2% as of December 31, 2003 and 18.4% as of September 30, 2003. During the
first quarter of fiscal year 2004, the company repaid $5,046 of debt assumed in
the purchase of Incadea AG. Remaining credit available under committed revolving
credit agreements was $93,000 at December 31, 2003. In addition to this
committed credit agreement, the company also has a variety of other short-term
credit lines available. Management estimates that cash balances, cash flow from
operations and cash available from existing credit agreements will be sufficient
to fund normal operations over the next year. Cash balances are placed in
short-term investments until needed.
On January 22, 2004, Reyna Funding, L.L.C., a consolidated affiliate of the
company, renewed a loan funding agreement, whereby Reyna Funding, L.L.C. may
borrow up to $100,000 using finance receivables purchased from Reyna Capital
Corporation, also a consolidated affiliate of the company, as security for the
loan. The securitization allows borrowings, up to the $100,000 limit, with
interest payable on a variable rate basis. This loan funding agreement is
renewable annually through January 23, 2006. The outstanding borrowings under
this arrangement were included with Financial Services notes payable on the
Condensed Consolidated Balance Sheets. As of December 31, 2003, the balance
outstanding on this facility was $100,000.
The company has consistently produced strong operating cash flows sufficient to
fund normal operations. Strong operating cash flows are the result of stable
operating margins and a high percentage of recurring revenues, which require
relatively low capital investment. Debt instruments have been used primarily to
fund business combinations and Financial Services receivables.
15
As of December 31, 2003, the company could issue an additional $130,000 of
notes under a shelf registration statement on file with the Securities and
Exchange Commission. Management believes that its strong balance sheet and cash
flows should help maintain an investment grade credit rating that should provide
access to capital sufficient to meet the company's cash requirements beyond the
next year. See Note 6 to the Condensed Consolidated Financial Statements for
additional disclosures regarding the company's debt instruments.
SHAREHOLDERS' EQUITY
The company lists its Class A common shares on the New York Stock Exchange.
There is no principal market for the Class B common shares. The company also has
an authorized class of 60,000 preferred shares with no par value. As of December
31, 2003, no preferred shares were outstanding and there were no agreements or
commitments with respect to the sale or issuance of these shares, except for
preferred share purchase rights described in the company's annual report on Form
10-K for the fiscal year ended September 30, 2003.
Dividends are typically declared each November, February, May and August and
paid in January, April, June and September. Dividends per Class A common share
must be twenty times the dividends per Class B common share and all dividend
payments must be simultaneous. The company has paid dividends every year since
the company's initial public offering in 1961.
During the three months ended December 31, 2003, the company repurchased 1,285
Class A common shares for $36,007 ($28.03 per share). As of December 31, 2003,
the company could repurchase an additional 6,881 Class A common shares under an
existing board of directors' authorization.
APPLICATION OF CRITICAL ACCOUNTING POLICIES
The company's Consolidated Financial Statements and Notes to Consolidated
Financial Statements are prepared in accordance with accounting principles
generally accepted in the United States of America. Preparing financial
statements and applying accounting policies requires management to make
judgments, estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses. Critical accounting policies for the company
include revenue recognition, accounting for software licensed to customers,
accounting for long-lived assets, accounting for income taxes and accounting for
postretirement benefits.
REVENUE RECOGNITION
Sales of computer hardware and business forms products are recorded when title
passes upon shipment to customers. Revenues from software license fees are
accounted for in accordance with American Institute of Certified Public
Accountants (AICPA) Statement of Position (SOP) 97-2, "Software Revenue
Recognition." The company recognizes revenue when (i) pervasive evidence of an
arrangement exists; (ii) delivery has occurred or services have been rendered;
(iii) the sales price is fixed or determinable; and (iv) collectibility is
reasonably assured. Service revenues, which include computer hardware
maintenance, software support, training, consulting and Web hosting are recorded
ratably over the contract period or as services are performed. The application
of SOP 97-2 requires judgment, including whether a software arrangement includes
multiple elements (as defined in Emerging Issues Task Force (EITF) Issue No.
00-21, "Revenue Arrangements with Multiple Deliverables"), and if so, whether
vendor-specific objective evidence of fair value exists for those elements.
Software revenues which do not meet the criteria set forth in EITF Issue No.
00-3, "Application of AICPA SOP 97-2 to Arrangements That Include the Right to
Use Software Stored on Another Entity's Hardware," are recorded ratably over the
contract period as services are provided.
SOFTWARE LICENSED TO CUSTOMERS
The company capitalizes certain costs of developing its software products in
accordance with SFAS No. 86, "Accounting for the Costs of Computer Software to
Be Sold, Leased, or Otherwise Marketed." SFAS No. 86 specifies that costs
incurred in creating a computer software product should be charged to expense
when incurred, as research and development, until technological feasibility has
been established for the product. Technological feasibility is established
either by creating a detail program design or a tested working model. Judgment
is required in determining when technological feasibility of a product is
established. The company follows a standard process for developing software
products. This process has five phases: selection, definition, development,
delivery and general customer acceptability (GCA). When using proven technology,
management believes that technological feasibility is established upon the
completion of the definition phase (detail program design). When using newer
technology, management believes that technological feasibility is established
upon completion of the delivery phase (tested working model). Once technological
feasibility is established, software development costs are capitalized until the
product is available for general release to customers (GCA). Software
development costs consist primarily of payroll and benefits for both employees
and outside contractors.
16
Upon general release of a software product, amortization is determined based on
the larger of the amounts computed using (a) the ratio that current gross
revenues for each product bears to the total of current and anticipated future
gross revenues for that product, or (b) the straight-line method over the
remaining estimated economic life of the product, ranging from three to seven
years.
LONG-LIVED ASSETS
The company has completed numerous business combinations over the years. These
business combinations result in the acquisition of intangible assets and the
recognition of goodwill on the company's Consolidated Balance Sheet. The company
accounts for these assets under the provisions of SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No.
142 requires that goodwill not be amortized, but instead tested for impairment
at least annually. The Statement also requires recognized intangible assets with
finite useful lives to be amortized over their useful lives. Long-lived assets,
goodwill and intangible assets are reviewed for impairment annually or whenever
events or circumstances indicate that the carrying amount of an asset may not be
recoverable from future cash flows. Future cash flows are forecasted based on
management's estimates of future events and could be materially different from
actual cash flows. If the carrying value of an asset is considered impaired, an
impairment charge is recorded for the amount by which the carrying value of the
asset exceeds its fair value.
INCOME TAXES
The company accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes." The objectives of accounting for income taxes are
to recognize the amount of taxes payable or refundable for the current year and
deferred tax liabilities and assets for the future tax consequences of events
that have been recognized in the company's financial statements or tax returns.
Judgment is required in assessing the future tax consequences of events that
have been recognized in the company's financial statements or tax returns.
Fluctuations in the actual outcome of these future tax consequences could
materially impact the company's financial position or its results of operations.
POSTRETIREMENT BENEFITS
The company sponsors defined benefit pension plans for most employees. The
company also sponsors a defined benefit medical plan and a defined benefit life
insurance plan for certain employees. The company's postretirement plans are
described in the company's annual report on Form 10-K for the fiscal year ended
September 30, 2003. The company accounts for its postretirement benefit plans
according to SFAS No. 87, "Employers' Accounting for Pensions" and SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." These
statements require the use of actuarial models that allocate the cost of an
employee's benefits to individual periods of service. The accounting under SFAS
No. 87 and SFAS No. 106 therefore requires the company to recognize costs before
the payment of benefits. Certain assumptions must be made concerning future
events that will determine the amount and timing of the benefit payments. Such
assumptions include the discount rate, the expected long-term rate of return on
plan assets, the rate of future compensation increases and the healthcare cost
trend rate. In addition, the actuarial calculation includes subjective factors
such as withdrawal and mortality rates to estimate the projected benefit
obligation. The actuarial assumptions used may differ materially from actual
results due to changing market and economic conditions, higher or lower
withdrawal rates, or longer or shorter life spans of participants. These
differences may result in a significant impact on the amount of postretirement
benefit expense recorded in future periods. The company annually evaluates the
assumptions used to determine postretirement benefit expense for its qualified
and non-qualified defined benefit plans. The company adjusted assumptions used
to measure the amount of postretirement benefit expense, reducing the discount
rate to 6.0% in fiscal year 2004 from 7.25% in fiscal year 2003 and reducing the
expected long-term rate of return on plan assets to 8.25% in fiscal year 2004
from 9.0% in fiscal year 2003. The company is not required to make minimum
contributions to its postretirement plans in fiscal year 2004, although the
company may elect to make contributions. See the company's annual report on Form
10-K for the fiscal year ended September 30, 2003, for more detail disclosures
regarding postretirement benefits, including relevant assumptions used to
determine expense and future obligations.
MARKET RISKS
INTEREST RATES
The Automotive Solutions portion of the business borrows money primarily to fund
business combinations. Generally the company borrows under fixed rate agreements
with terms of ten years or less. During fiscal year 2002, the company entered
into $100,000 of interest rate swaps to reduce the effective interest expense on
outstanding long-term debt. In this transaction the company effectively
converted 7% fixed rate debt into variable rate debt, which averaged 3.5% in the
first quarter of fiscal year 2004. These interest rate swap agreements were
designated as fair value hedges. The company does not use financial instruments
for trading purposes.
17
The Financial Services segment of the business, including Reyna Funding L.L.C.,
a consolidated affiliate of the company, obtains borrowings to fund the
investment in finance receivables. These fixed rate receivables generally have
repayment terms of five years. The company funds finance receivables with debt
that has repayment terms consistent with the maturities of the finance
receivables. Generally the company attempts to lock in the interest spread on
the fixed rate finance receivables by borrowing under fixed rate agreements or
using interest rate management agreements to manage variable interest rate
exposure. The company does not use financial instruments for trading purposes.
During the first quarter of fiscal year 2004, Reyna Funding, L.L.C. entered into
$8,337 of interest rate swaps to replace maturing interest rate swaps.
Because fixed rate finance receivables are primarily funded with fixed rate debt
or its equivalent (variable rate debt that has been fixed with interest rate
swaps), management believes that a one percentage point move in interest rates
would not have a material effect on the company's financial statements. See Note
6 to the Condensed Consolidated Financial Statements for additional disclosures
regarding the company's debt instruments and interest rate management
agreements.
FOREIGN CURRENCY EXCHANGE RATES
The company has foreign-based operations, primarily in Canada, which accounted
for 8% of net sales and revenues in the first quarter of fiscal year 2004. In
the conduct of its foreign operations, the company has intercompany sales,
expenses and loans between the U.S. and its foreign operations and may receive
dividends denominated in different currencies. These transactions expose the
company to changes in foreign currency exchange rates. At December 31, 2003, the
company had no foreign currency exchange contracts outstanding. Based on the
company's overall foreign currency exchange rate exposure at December 31, 2003,
management believes that a 10% change in currency rates would not have a
material effect on the company's financial statements.
ENVIRONMENTAL MATTERS
See Note 10 to the Condensed Consolidated Financial Statements for a discussion
of the company's environmental contingencies.
ACCOUNTING STANDARDS
See Note 12 to the Condensed Consolidated Financial Statements for a discussion
of the effect of accounting standards that the company has not yet adopted.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Certain statements in this Management's Discussion and Analysis of the Financial
Condition and Results of Operations constitute forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. The
forward-looking statements are based on current expectations, estimates,
forecasts and projections of future company or industry performance based on
management's judgment, beliefs, current trends and market conditions.
Forward-looking statements made by the company may be identified by the use of
words such as "expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates" and similar expressions. Forward-looking statements are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions, which are difficult to predict. Actual outcomes and results may
differ materially from what is expressed, forecasted or implied in any
forward-looking statement. The company undertakes no obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise. See also the discussion of factors that may affect future
results contained in the company's Current Report on Form 8-K filed with the SEC
on August 11, 2000, which is incorporated herein by reference.
CONTROLS AND PROCEDURES
The company's management, including the Chief Executive Officer and Chief
Financial Officer, conducted an evaluation of the effectiveness of disclosure
controls and procedures as required by paragraph (b) of Exchange Act Rule 13a-15
as of the end of the period covered by this quarterly report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the disclosure controls and procedures are effective in ensuring that all
material information required to be filed in this quarterly report has been made
known to them in a timely fashion. There has been no change in the company's
internal control over financial reporting that occurred during the fiscal period
covered by this quarterly report that has materially affected, or is reasonably
likely to materially affect, the company's internal control over financial
reporting.
18
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(iii)(a) Amended and Restated Change of Control
Agreement, dated as of November 11, 2003,
between the company and Douglas M. Ventura.
10(iii)(b) Amended and Restated Change of Control
Agreement, dated as of November 11, 2003,
between the company and Dale L. Medford.
31.1 Certification
31.2 Certification
32.1 Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
On October 3, 2003, the company filed a report on
Form 8-K that included the company's October 2, 2003
press release announcing a series of actions to
accelerate growth and strengthen the company as a
leader in providing software and services to
automotive retailers and car companies globally.
On November 5, 2003, the company filed a report on
Form 8-K that included the financial results for the
fourth quarter and fiscal year ended September 30,
2003.
On January 7, 2004, the company filed a report on
Form 8-K that included the company's presentation
materials to be used at an investor conference on
January 7, 2004, and an Investor forum on January 8,
2004.
On January 21, 2004, the company filed a report on
Form 8-K that included the company's January 21,
2004, press release announcing financial results for
the quarter ended December 31, 2003.
19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE REYNOLDS AND REYNOLDS COMPANY
Date February 13, 2004 /s/ Lloyd G. Waterhouse
--------------------------------
Lloyd G. Waterhouse
Chief Executive Officer,
Chairman and President
Date February 13, 2004 /s/ Dale L. Medford
--------------------------------
Dale L. Medford
Executive Vice President
and Chief Financial Officer
20