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 December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 For the transition period from __ to___
Commission File Number 0-18984
REYNOLDS, SMITH AND HILLS, INC.
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(Exact name of registrant as specified in its charter)
FLORIDA 59-2986466
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4651 Salisbury Road, Jacksonville, Florida 32256
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(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 December 31, 1998 was 444,000 shares.
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
REYNOLDS, SMITH AND HILLS, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Nine Months Ended Three Months Ended
December 31 December 31
1998 1997 1998 1997
------------ ------------ ------------ ------------
Gross Revenue $ 31,044,000 $ 27,639,000 $ 10,763,000 $ 9,201,000
Subcontract and Other
Direct Costs 8,156,000 8,064,000 2,684,000 2,722,000
------------ ------------ ------------ ------------
NET SERVICE REVENUE 22,888,000 19,575,000 8,079,000 6,479,000
Cost of Services 8,745,000 7,781,000 3,051,000 2,513,000
------------ ------------ ------------ ------------
GROSS PROFIT 14,143,000 11,794,000 5,028,000 3,966,000
Selling, General and
Administrative Expenses 13,771,000 11,266,000 4,841,000 3,840,000
------------ ------------ ------------ ------------
OPERATING INCOME 372,000 528,000 187,000 126,000
OTHER INCOME (EXPENSE):
Interest and other income 72,000 84,000 9,000 33,000
Interest expense (16,000) (3,000) (6,000) (1,000)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 428,000 609,000 190,000 158,000
INCOME TAX EXPENSE 198,000 279,000 76,000 77,000
------------ ------------ ------------ ------------
NET INCOME $ 230,000 $ 330,000 $ 114,000 $ 81,000
============ ============ ============ ============
BASIC EARNINGS PER SHARE $ .51 $ .73 $ .26 $ .18
============ ============ ============ ============
AVERAGE COMMON SHARES
OUTSTANDING 455,000 455,000 444,000 455,000
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
REYNOLDS, SMITH AND HILLS, INC.
CONSOLIDATED BALANCE SHEETS (Unaudited)
December 31, March 31,
1998 1998
ASSETS ------------ ----------
- ------
CURRENT ASSETS:
Cash $ 961,000 $ 2,364,000
Accounts receivable, net of allowance
for doubtful accounts of $172,000
and $162,000 5,428,000 4,113,000
Unbilled service revenue 3,951,000 3,680,000
Prepaid expenses and other current assets 156,000 225,000
Deferred income taxes 219,000 219,000
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Total current assets 10,715,000 10,601,000
Property and equipment, net 2,247,000 1,798,000
Other assets 41,000 47,000
Identifiable intangible assets, net of
accumulated amortization of
$952,000 and $909,000 85,000 128,000
Cost in excess of net assets of acquired
business, net of accumulated
amortization of $225,000
and $177,000 1,395,000 736,000
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TOTAL ASSETS $14,483,000 $13,310,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable and current portion of
long-term debt $ 100,000 $ 7,000
Accounts payable 2,942,000 1,933,000
Accrued payroll 373,000 646,000
Accrued incentive compensation 280,000 548,000
Accrued expenses 1,322,000 1,487,000
Unearned service revenue 2,473,000 2,054,000
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Total current liabilities 7,490,000 6,675,000
Long-term debt 200,000 0
Deferred Income Taxes 206,000 206,000
Other Liabilities 477,000 521,000
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Total liabilities 8,373,000 7,402,000
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 4,000,000 shares
authorized, 444,000 and 455,000 issued
and outstanding 4,000 5,000
Paid-in capital 3,520,000 3,541,000
Retained Earnings 2,586,000 2,362,000
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Total shareholders' equity 6,110,000 5,908,000
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$14,483,000 $13,310,000
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See accompanying notes to consolidated financial statements.
REYNOLDS, SMITH AND HILLS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
FOR THE NINE MONTHS ENDED DECEMBER 31, 1998
1998 1997
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OPERATING ACTIVITIES:
Net income $ 230,000 $ 330,000
Adjustments to reconcile net income to
net cash provided (used) by operating
activities:
Depreciation and amortization 601,000 572,000
Loss on disposal of fixed assets 8,000 (2,000)
Deferred rent charges (47,000) (81,000)
Change in operating assets and liabilities:
Accounts receivable and unbilled
service revenue (1,538,000) (824,000)
Other assets and prepaid expenses 76,000 95,000
Accounts payable and accrued expenses 325,000 (86,000)
Unearned service revenue 419,000 (76,000)
----------- -----------
Net cash provided (used) by operating activities 74,000 (72,000)
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INVESTING ACTIVITIES:
Capital expenditures (951,000) (187,000)
Purchase of subsidiary (387,000) --
Proceeds from sale of fixed assets 6,000 3,000
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Net cash used by investing activities (1,332,000) (184,000)
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FINANCING ACTIVITIES:
Repayments of debt (55,000) (60,000)
Net proceeds from issuance of common stock 1,000 --
Repurchase of common stock (91,000) --
----------- -----------
Net cash used by financing activities (145,000) (60,000)
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NET DECREASE IN CASH (1,403,000) (316,000)
CASH AT BEGINNING OF PERIOD 2,364,000 1,459,000
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CASH AT END OF PERIOD $ 961,000 $ 1,143,000
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See accompanying notes to consolidated financial statements.
REYNOLDS, SMITH AND HILLS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
DECEMBER 31, 1998
BASIS OF PRESENTATION
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1) The accompanying unaudited financial statements, in the opinion of
management, include all adjustments (consisting of normal recurring
accruals) necessary to present fairly the results of operations and
financial position of the Company for the periods indicated. However,
certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements,
schedules, and notes thereto included in the Company's annual report on
Form 10-K for the fiscal year ended March 31, 1998.
2) Earnings per share of common stock are based on weighted average number
of shares outstanding during each period.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
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Gross revenue for the first nine months of fiscal 1999 was $31,044,000 as
compared to gross revenue of $27,639,000 for the first nine months of fiscal
1998. This 12% increase occurred primarily in the transportation,
aerospace/defense, and institutional programs. Work on several large new
projects in these areas began after the second quarter of fiscal 1998. Net
service revenues increased 17% to $22,888,000 in the first nine months of fiscal
1999 from $19,575,000 in the first nine months of fiscal 1998 as a result of the
gross revenue increases mentioned above. Gross revenue for the third quarter of
fiscal 1999 was $10,763,000 as compared to gross revenue of $9,201,000 for the
third quarter of fiscal 1998. This 17% increase occurred primarily in the
transportation and institutional programs. Work on several large new projects in
these areas began after the third quarter of fiscal 1998. Net service revenues
increased 25% to $8,079,000 in the third quarter of fiscal 1999 from $6,479,000
in the third quarter of fiscal 1998 as a result of the gross revenue increases
mentioned above.
Cost of services represents direct labor costs associated with the generation of
net service revenues. Cost of services for the first nine months of fiscal 1999
was $8,745,000, representing a 12% increase from the same period for fiscal
1998. This increase was due to the increase in operational personnel hired to
support the Company's increased work load. Expressed as a percentage of net
service revenue, cost of services improved to 38% for the first nine months of
fiscal 1999 from 40% for the first nine months of fiscal 1998. As a result of
the increase in revenues, gross profit increased 20% to $14,143,000 in the first
nine months of fiscal 1999 from $11,794,000 for the first nine months of fiscal
1998. Cost of services for the third quarter of fiscal 1999 was $3,051,000,
representing a 21% increase from the same period for fiscal 1998. This increase
was also due to the addition of operational personnel hired to support the
increased work load. Expressed as a percentage of net service revenue, cost of
services also improved to 38% for the third quarter of fiscal 1999 from 39% for
the third quarter of fiscal 1998. As a result of the increase in revenues, gross
profit increased 27% to $5,028,000 in the third quarter of fiscal 1999 from
$3,966,000 for the third quarter of fiscal 1998.
Selling, general and administrative (SG&A) expenses consist of labor costs of
operational personnel not utilized on projects (i.e. indirect labor), labor
costs of administrative and support personnel, office rent, depreciation,
insurance and other operating expenses. SG&A expenses for the first nine months
of fiscal 1999 were $13,771,000 as compared to $11,266,000 for the first nine
months of fiscal 1998. This 22% increase was due primarily to an increase in
labor costs as a result of a net 17% increase in personnel. Increased marketing
and proposal efforts resulted in a lower project utilization (labor charged to
cost of services). The acquisition of an eleven person architectural firm in
Miami attributed to increases in expenses such as travel, payroll and benefits,
and goodwill amortization. In addition, rent expense increased due to 1) the
relocation of the Ft. Myers and Orlando offices into larger space to accommodate
growth and 2) the expansion of the Company into Flint, Michigan and Houston,
Texas. Increases in telephone and related annual maintenance fees, leased
computer expense, annual software license fees, consulting, travel, recruiting,
and professional fees also accounted for the change.
SG&A expenses for the third quarter of fiscal 1999 were $4,841,000 as compared
to $3,840,000 for the third quarter of fiscal 1998. As described above, this 26%
increase was due primarily to increases in labor costs related to the Company's
internal growth and the acquisition of the firm in Miami. Increases were
experienced in rent expense, telephone and related annual maintenance fees,
leased computer expense, annual software license fees, consulting, travel,
recruiting costs, and professional fees.
Income before income taxes was $428,000 for the first nine months of fiscal 1999
compared to $609,000 for the same period of fiscal 1998. Net income for the
first nine months of fiscal 1999 was $230,000 compared to $330,000 for the first
nine months of fiscal 1998. These 30% decreases were due to the increase in
operating expenses as discussed above.
Income before income taxes was $190,000 for the third quarter of fiscal 1999
compared to $158,000 for the same period of fiscal 1998. Net income for the
third quarter of fiscal 1999 was $114,000 compared to $81,000 for the third
quarter of fiscal 1998. These 20% and 41% increases were due to the increase in
revenues as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
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As of December 31, 1998 the Company had cash of $961,000. The Company has in
place a revolving line of credit which provides for borrowing up to $2,000,000.
The Company also has a committed credit facility of $2,000,000 which may be used
for the acquisition or merger of other architectural/engineering companies.
There were no borrowings outstanding under either borrowing agreement at
December 31, 1998. The Company believes that its existing financial resources,
together with its cash flow from operations and its unused lines of credit, will
provide sufficient capital to fund its operations for the foreseeable future.
On May 7, 1998, the Company acquired all of the outstanding shares of Lemuel
Ramos and Associates, Inc., an eleven person architectural firm located in
Miami, Florida. The Company paid cash of $387,000 and signed a $300,000 note
payable to obtain the company. The acquisition has been accounted for using the
purchase method of accounting, and, accordingly, the purchase price has been
allocated to the assets purchased and the liabilities assumed based upon the
fair market values at the date of acquisition. The excess of the purchase price
over the fair values of the net assets was $708,000 and has been recorded as
goodwill, which is being amortized on a straight-line basis over 15 years. The
net purchase price was allocated as follows:
Accounts receivable $ 50,000
Fixed assets 21,000
Goodwill 708,000
Liabilities ( 92,000)
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Purchase price $ 687,000
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YEAR 2000
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State of Readiness:
The Company is in process of preparing its computer systems and applications for
the Year 2000. This process involves developing a plan for the Year 2000 issue.
It includes identifying and communicating with external service providers to
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 mid 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 in process and are expected to be able to be tested in early 1999. The
Company currently expects to have its general ledger system tested by April 1,
1999 as this is the beginning of the Company's fiscal 2000 year. The third party
payroll service states that its systems are not expected to experience Year 2000
related problems and has disclosed this in its recent 10K filing. Finally, the
Company has been given assurances by its third party telecommunication hardware
and service providers that there will be no interruption in telecommunications
resulting from the Year 2000 issue.
Associated Costs:
The Company expects that the principal costs will be those associated with
testing of its computer applications. The total cost to the Company of these
Year 2000 activities has not been, and is not anticipated to be, material to its
financial position or results of operations in any given year. These costs and
completion dates are based on management's best estimates, which were derived
utilizing numerous assumptions of future events including third party
modification plans. There can be no assurances that these estimates will be
achieved.
Risks:
The risks associated with a failure of systems to respond correctly to the Year
2000 are: 1) delays in billings and subsequent cash receipts, 2) delays in
production of architectural/engineering documents due to hardware, software,
telecommunication or other problems between offices and clients (wide area
network file sharing and transmission), and 3) potential risk due to inability
to adequately recognize revenue and related expenses. In addition, there can be
no assurances that there will not be material litigation brought against the
Company for Year 2000 related issues.
Contingency Plans:
In the event that the material core systems fail to function properly given the
Year 2000 problems, the Company has established various contingency plans to
maintain operations. For general ledger and billing systems, such contingency
plans include temporarily maintaining the general ledger with a 1999 date or
manual processing of records. 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.
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 this
conforming paper filing.
(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: February 12, 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 and Director
(Principal Financial and
Accounting Officer)