SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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 0-12329
LCS INDUSTRIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-2648333
- - - - ------------------------ ------------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
120 Brighton Road, Clifton, New Jersey 07012-1694
- - - - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 778-5588
-----------------------------
N/A
- - - - --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes ( X ) No ( )
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of the registrant's Common Stock, par
value of $.01 per share, as of May 3, 1995, was 2,034,289.
<PAGE>
LCS INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
As of March 31, 1995 (Unaudited) and
September 30, 1994
Consolidated Statements of Operations
For the Three Months and Six Months Ended
March 31, 1995 and 1994 (Unaudited)
Consolidated Statements of Cash Flows
For the Six Months Ended
March 31, 1995 and 1994 (Unaudited)
Notes to Consolidated Financial Statements
(Unaudited)
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 4. Submission of Matters to a Vote of
Security-Holders
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, September 30,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 3,661,543 $ 1,679,489
Investments - held-to-maturity .................... 339,973 535,068
Accounts receivable (less allowance
for doubtful accounts: March 31 - $603,000
and September 30 - $585,000) .................. 17,190,901 17,916,539
Prepaid expenses and other current assets ......... 1,631,029 1,231,221
Deferred taxes .................................... 293,465 327,595
------------ ------------
Total current assets ............................ 23,116,911 21,689,912
------------ ------------
Investments - available-for-sale, net ................ 729,915 782,451
Investments - held-to-maturity ....................... 199,859 199,859
Property and equipment, net .......................... 4,996,264 5,246,373
Goodwill (net of accumulated amortization: March 31 -
$171,750 and September 30, - $100,000) ........... 3,437,338 3,499,092
Deferred taxes ....................................... 77,233 148,158
Other assets ......................................... 496,514 420,344
------------ ------------
$ 33,054,034 $ 31,986,189
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................. $ 10,349,298 $ 12,060,895
Accrued salaries and commissions .................. 1,169,065 1,237,878
Other accrued expenses ............................ 2,505,531 2,457,307
Income taxes payable .............................. 803,448 153,803
Deferred taxes .................................... 29,240 22,552
Current portion of long-term debt ................. 561,997 606,709
Current portion of capital lease obligations ...... 484,853 478,259
------------ ------------
Total current liabilities ....................... 15,903,432 17,017,403
------------ ------------
Continued on next page.
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Continued from previous page.
<CAPTION>
March 31, September 30,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
Long-term debt, net of current portion ............... 327,694 837,446
Capital lease obligations, net of current portion .... 863,660 967,247
Deferred taxes ....................................... 123,208 298,701
Stockholders' equity:
Preferred stock $.01 par value; authorized
1,000,000 shares; issued - none
Common stock $.01 par value; authorized
6,000,000 shares; issued March 31 - 2,217,625
shares and September 30 - 1,909,337 shares .... 22,176 19,093
Common stock issuable ............................. 461,538 967,788
Additional paid-in capital ........................ 4,605,619 2,261,497
Retained earnings ................................. 11,070,783 9,912,936
------------ ------------
16,160,116 13,161,314
Less: treasury stock, at cost, 187,766 shares .... (207,953) (207,953)
marketable securities valuation adjustment . (116,123) (87,969)
------------ ------------
Total stockholders' equity ...................... 15,836,040 12,865,392
------------ ------------
$ 33,054,034 $ 31,986,189
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
---------------------------- ----------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ............................ $ 18,385,185 $ 15,339,660 $ 37,121,142 $ 31,792,964
Cost of sales ........................ 12,486,573 11,289,159 25,710,927 23,459,701
------------ ------------ ------------ ------------
Gross profit ...................... 5,898,612 4,050,501 11,410,215 8,333,263
Selling and administrative expenses .. 3,335,203 3,199,271 6,673,795 6,773,419
Other (income) expense:
Interest income ................... (59,894) (25,928) (96,586) (43,652)
Interest expense .................. 53,696 87,411 96,924 177,246
------------ ------------ ------------ ------------
Income before income taxes ........ 2,569,607 789,747 4,736,082 1,426,250
Provision for income taxes ........... 1,056,000 325,000 1,939,000 575,000
------------ ------------ ------------ ------------
Net income ........................... $ 1,513,607 $ 464,747 $ 2,797,082 $ 851,250
============ ============ ============ ============
Per common and common equivalent share
Net income ........................... $ .66 $ .22 $ 1.25 $ .40
============ ============ ============ ============
Weighted average number of
shares outstanding .............. 2,290,840 2,128,256 2,238,499 2,116,420
========= ========= ========= =========
Dividends ............................ $ .034 $ .023 $ .057 $ .046
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Increase (Decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income ........................................... $ 2,797,082 $ 851,250
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ..................... 885,257 754,111
Deferred income taxes ............................. (45,000) 122,000
Provision for doubtful accounts receivable ........ 45,000 86,010
Gain on sale of fixed assets ...................... (3,000) --
----------- -----------
Total adjustments ................................. 882,257 962,121
Changes in operating assets and liabilities:
Accounts receivable ............................... 680,638 (300,735)
Prepaid expenses and other current assets ......... (399,808) 146,473
Accounts payable and accrued expenses ............. (1,732,187) 154,573
Income taxes payable .............................. 649,645 (6,011)
Other, net ........................................ (76,170) 93,466
----------- -----------
Total adjustments and changes ..................... 4,375 1,049,887
----------- -----------
Net cash provided by operating activities ......... 2,801,457 1,901,137
----------- -----------
</TABLE>
Continued on next page.
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31,
(Unaudited)
Continued from previous page.
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Changes in note payable, long-term debt and capital
leases (including current portion):
Borrowings .................................... -- 850,000
Repayments .................................... (803,982) (1,852,208)
Dividends paid .................................... (109,838) (82,817)
Exercise of stock options ......................... 283,059 62,063
Employee stock purchase plan proceeds ............. 28,500 --
----------- -----------
Net cash used in financing activities ............. (602,261) (1,022,962)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment ............... (511,807) (500,397)
Proceeds from sales of equipment .................. 93,938 --
Net sales (purchases) of marketable securities .... 200,727 (22,733)
----------- -----------
Net cash used in investing activities ............. (217,142) (523,130)
----------- -----------
Cash and cash equivalents:
Net increase in cash and cash equivalents ......... 1,982,054 355,045
Cash and cash equivalents at beginning of period .. 1,679,489 1,054,538
----------- -----------
Cash and cash equivalents at end of period ........ $ 3,661,543 $ 1,409,583
=========== ===========
</TABLE>
Continued on next page.
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31,
(Unaudited)
Continued from previous page.
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Supplementary disclosures of cash flow information:
Cash paid during the period for:
Interest ................................... $ 74,457 $ 147,816
Income taxes ............................... $ 1,350,565 $ 517,005
Supplemental disclosures of non-cash investing
and financing activities:
Capital lease obligations:
For the six months ended March 31, 1995 and March 31, 1994, capital lease obligations
of $152,525 and $130,679, respectively, were incurred for the leasing of equipment.
Marketable securities valuation adjustment:
During the six month period ended March 31, 1995, $25,158, net of taxes, was added to
the marketable securities valuation adjustment. This represents the additional net
unrealized losses on the investments - available-for-sale, net, during the period.
Acquisition of business:
During the six month period ended March 31, 1995, $506,250 of common stock issuable
was converted into 63,613 issued shares of the Company's common stock, in
accordance with the terms of the Catalog Resources, Inc. purchase agreement.
Stock dividend:
On January 31, 1995, 179,929 shares of the Company's common stock were distributed
as a 10% stock dividend.
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1) In the opinion of management, the accompanying unaudited financial statements
include all adjustments (consisting only of normal recurring accruals) which
are necessary for a fair presentation of results for the periods indicated.
Certain information and footnote disclosures normally included in complete
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. Therefore, these financial
statements should be read in conjunction with the financial statements and
the footnotes included in the Company's Annual Report on Form 10-K for the
year ended September 30, 1994. The results of operations for the six months
ended March 31, 1995 and 1994 are not necessarily indicative of the results
for the full year. The September 30, 1994 Balance Sheet was derived from the
audited Balance Sheet at that date.
2) Certain reclassifications have been made to the 1994 financial statements in
order to conform to the fiscal 1995 presentations.
3) For the three and six month periods ended March 31, 1995 and 1994, earnings
per share have been calculated based on the weighted average shares
outstanding using the treasury stock method for stock options which are
considered common stock equivalents. Earnings per share and the weighted
average number of shares outstanding for all periods include the effect of
the ten percent stock dividend distributed January 31, 1995 to stockholders
of record on January 20, 1995 and the shares computed to be currently
issuable in connection with the acquisition of Catalog Resources, Inc.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
- - - - ---------------------
Three Months ended March 31, 1995
---------------------------------
Sales increased 20% in the quarter ended March 31, 1995 to $18,385,000
from $15,340,000 for the comparable quarter of the prior year. This improvement
is accounted for by a 61% increase in fulfillment services, a 6% increase in
list marketing services, partially offset by a 17% decrease in computer
services. Fulfillment services' increase reflects a 241% increase in the catalog
fulfillment operation partially offset by a 55% reduction in inbound
telemarketing revenues. Continued increases in transaction volume from an
existing customer was the primary reason for this increase. The decrease in
inbound telemarketing is part of the Company's strategic plan to de-emphasize
this service. The list marketing revenue increase resulted generally from an
expanded customer base and increased volumes with continuing customers. The
computer services' decrease reflected lower revenues in all areas, including
reduced revenues from a contract with a major non-U.S. telecommunications
company.
Gross profit increased 46% to $5,899,000 for the current quarter from
$4,051,000 in the comparable quarter of 1994. Gross profit margin was 32% in the
current quarter compared to 26% in 1994. The increase in gross profit amount
resulted primarily from the increased sales volumes and a continued improvement
in overall profit margins. The improvement in gross margin resulted primarily
from the increased catalog fulfillment revenues which have a higher gross profit
margin than the margins derived from the other operations of the Company.
Selling and administrative expenses increased 4% to $3,335,000 in the
current quarter from $3,199,000 in the comparable quarter of 1994. Selling and
administrative expenses, as a percentage of sales, were 18% for the current
quarter and 21% for the comparable period in 1994. The decrease in amount of
selling and administrative expenses, when compared to the sales increase of 20%,
and the decrease in these costs as a percentage of sales are due primarily to
lower selling and administrative expenses associated with the incremental
revenues at the catalog fulfillment operation, reduced selling and management
personnel and their related expenses and lower advertising expense.
Net interest income of $6,000 was realized in the current quarter
compared to net interest expense of $61,000 in the comparable 1994 quarter. Net
interest income resulted from increased amounts of funds available for
investment at higher rates. The line of credit was not used during the quarter.
In the prior year, the unsecured line of credit was utilized for the full
quarter and there were higher levels of long-term debt and capital lease
obligations outstanding.
Net income was $1,514,000 ($.66 per share) in the current quarter
compared to $325,000 ($.22 per share) in the comparable 1994 quarter.
Six Months ended March 31, 1995
-------------------------------
Sales increased 17% for the six months ended March 31, 1995 to
$37,121,000 from $31,793,000 for the comparable period of the prior year. This
improvement is accounted for by a 44% increase in fulfillment services, a 13%
increase in list marketing services partially offset be a 22% decrease in
computer services' sales. The increase in fulfillment services' sales reflects a
169% increase in the catalog fulfillment operation partially offset by a 65%
decline in inbound telemarketing revenues. Increased transaction volume from an
existing customer was the primary reason for this increase. The decrease in
inbound telemarketing is part of the Company's plan to de-emphasize this
service. The list marketing increase resulted generally from an expanded
customer base and increased volumes with continuing customers. The computer
services' decrease reflected lower revenues in all areas, including revenues
from a contract with a major non-U.S. telecommunications company.
Gross profit increased 37% to $11,410,000 for the six month period from
$8,333,000 in the comparable period of 1994. Gross profit margin was 31%
compared to 26% in the prior year. The increase in gross profit amount resulted
primarily from the increased sales volumes and improvement in overall profit
margins. The improvement in gross profit margin resulted primarily from the
increased catalog fulfillment revenues, described above, which have a higher
gross profit margin than the margins derived from the other operations of the
Company.
Selling and administrative expenses decreased 1% to $6,674,000 from
$6,773,000. Selling and administrative expenses, as a percentage of sales, were
18% for the current six month period and 21% in the prior year. The decrease in
the amount of selling and administrative expenses, when compared to the 17%
revenue gain for the six month period, and the decrease in these costs, as a
percentage of sales, are due primarily to lower selling and administrative
expenses associated with the incremental revenues at the catalog fulfillment
operation, reduced selling and management personnel and their related expenses
and lower advertising expense.
There was no net interest in the current period compared to net interest
expense of $134,000 in 1994. During the current six month period, interest
earned on invested funds coupled with higher interest rates offset interest
expense incurred on both long-term debt and capital lease obligations. The line
of credit was not used during the entire period. In the comparable period of
1994, net interest expense was incurred due to utilizing the line of credit for
varying amounts and higher levels of long-term debt and capital lease
obligations outstanding.
Net income was $2,797,000 ($1.25 per share) in the current period
compared to $851,000 ($.40 per share) in the comparable 1994 period.
Financial Condition, Liquidity and Capital Resources
----------------------------------------------------
Working capital was $7,213,000 at March 31, 1995 compared to $4,673,000
at September 30, 1994. Fluctuations in the components of working capital
resulted primarily from the increase in cash and a decrease in accounts payable
partially offset by a decrease in accounts receivable and an increase in income
taxes payable.
For the six month period, cash generated by operations increased by
$900,000 over such amounts generated in the comparable period of the prior year.
This increase was primarily the result of increases in net income of $1,946,000,
taxes payable of $656,000 and a decrease in accounts receivable of $981,000
offset by increases in prepaid expenses and other current assets of $546,000 and
a decrease in accounts payable and accrued expenses of $1,887,000.
In the period ended March 31, 1995, financing activities resulted in a
net use of funds of $602,000 compared to a use of funds of $1,023,000 in 1994.
In both periods, the repayment of debt was the primary use of funds and amounted
to $804,000 in 1995 and $1,825,000 in 1994. In 1994, $850,000 was borrowed
primarily to fund capital improvements at Catalog Resources, Inc. (CRI). Cash
used for investing activities, in the current period, decreased $306,000
compared to 1994 due to proceeds received from the sales of equipment and the
maturity of a marketable security investment.
Pursuant to the purchase agreement, as amended, with CRI, the Company is
obligated to pay to CRI's selling shareholders in cash or stock up to an
aggregate of $10,000,000. Under such purchase agreement, the Company paid
$1,012,500 (one-half in cash and one-half in stock) on January 1, 1995. Further,
assuming stated CRI earnings are achieved, such amounts will be payable each
January 1 through 2002 totalling a maximum of $7,875,000.
Management believes cash generated from current operations and other
liquid assets combined with the available bank credit line will be sufficient to
meet cash flow needs during the 1995 fiscal year.
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
A subsidiary of the Company is a co-defendant in an action filed in
Supreme Court in the State of New York, County of Westchester on January 25,
1995. The plaintiff, a competitor of the subsidiary, seeks damages based on
allegations of libel as well as tortious interference resulting in breach of
contract. The subsidiary has recently responded to the complaint. As a result,
the ultimate outcome of the lawsuit cannot, at this time, be predicted with
certainty. However, management does not expect that this matter will have a
material adverse effect on the consolidated financial position or results of
operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of shareholders was held on February 28, 1995.
(b) Shareholders reelected to the Board of Directors Mr. Arnold J.
Scheine and Mr. Marvin Cohen. Mr. Bernard Ouziel and Mr. Lee Gray continued as
members of the Board of Directors.
(c) The elections of Mr. Scheine and Mr. Cohen were by votes of
1,701,583 for and 13,547 withheld and 1,700,717 for and 14,413 withheld,
respectively. There were 146,799 broker non-votes. Deloitte & Touche LLP was
elected to serve as the Company's independent auditors by a vote of 1,708,943
for, 2,500 against and 3,687 abstentions. There were 152,459 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 11 - Computation of earnings per share
(b) Report on Form 8-K. - LCS Industries, Inc. filed a Form 8-K dated
January 25, 1995 which reported litigation involving a subsidiary as described
in Item 1 above.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: Clifton, New Jersey
May 9, 1995
LCS INDUSTRIES, INC.
----------------------------
(Registrant)
By: /s/ Arnold J. Scheine
----------------------------
Arnold J. Scheine
President
(Chief Executive Officer)
By: /s/ Pat R. Frustaci
----------------------------
Pat R. Frustaci
Vice President-Finance
(Chief Financial Officer)
EXHIBIT 11
LCS INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE AND
COMMON EQUIVALENT SHARE
For the Three and Six Months Ended March 31,
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
----------------------- -----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding .......... 2,020,780 1,949,672 2,002,829 1,945,902
Weighted average - dilutive stock options .... 227,126 135,650 192,736 127,584
Shares issuable in connection with the
acquisition of Catalog Resources, Inc. .... 42,934 42,934 42,934 42,934
---------- ---------- ---------- ----------
2,290,840 2,128,256 2,238,499 2,116,420
========== ========== ========== ==========
Net income ................................... $1,513,607 $ 464,747 $2,797,082 $ 851,250
Earnings per share and common equivalent share $ .66 $ .22 $ 1.25 $ .40
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> MAR-31-1995
<CASH> 3,661,543
<SECURITIES> 339,973
<RECEIVABLES> 17,793,901
<ALLOWANCES> 603,000
<INVENTORY> 188,119
<CURRENT-ASSETS> 23,116,911
<PP&E> 11,812,739
<DEPRECIATION> 6,816,475
<TOTAL-ASSETS> 33,054,034
<CURRENT-LIABILITIES> 15,903,432
<BONDS> 0
<COMMON> 22,176
0
0
<OTHER-SE> 15,813,864
<TOTAL-LIABILITY-AND-EQUITY> 33,054,034
<SALES> 0
<TOTAL-REVENUES> 37,121,142
<CGS> 0
<TOTAL-COSTS> 25,710,927
<OTHER-EXPENSES> 6,673,795
<LOSS-PROVISION> 45,000
<INTEREST-EXPENSE> 96,924
<INCOME-PRETAX> 4,736,082
<INCOME-TAX> 1,939,000
<INCOME-CONTINUING> 2,797,082
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,797,082
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 0
</TABLE>
