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 June 30, 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 August 3, 1995, was 2,058,825.
<PAGE>
LCS INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
As of June 30, 1995 (Unaudited) and
September 30, 1994
Consolidated Statements of Operations
For the Three Months and Nine Months Ended
June 30, 1995 and 1994 (Unaudited)
Consolidated Statements of Cash Flows
For the Nine Months Ended
June 30, 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 6. Exhibits and Reports on Form 8-K
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................... $ 4,854,764 $ 1,679,489
Investments - held-to-maturity ...................... 539,832 535,068
Accounts receivable (less allowance
for doubtful accounts: June 30 - $624,000
and September 30 - $585,000) .................... 16,798,518 17,916,539
Prepaid expenses and other current assets ........... 1,229,936 1,231,221
Deferred taxes ...................................... 299,200 327,595
------------ ------------
Total current assets .............................. 23,722,250 21,689,912
------------ ------------
Investments - available-for-sale, net .................. 774,493 782,451
Investments - held-to-maturity ......................... -- 199,859
Property and equipment, net ............................ 4,868,604 5,246,373
Goodwill (net of accumulated amortization: June 30 -
$202,630 and September 30, - $100,000) ............. 3,406,460 3,499,092
Deferred taxes ......................................... 61,700 148,158
Other assets ........................................... 568,887 420,344
------------ ------------
$ 33,402,394 $ 31,986,189
============ ============
</TABLE>
Continued on next page.
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
June 30, September 30,
1995 1994
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 10,223,999 $ 12,060,895
Accrued salaries and commissions .................... 1,027,464 1,237,878
Other accrued expenses .............................. 2,070,043 2,457,307
Income taxes payable ................................ 368,161 153,803
Deferred taxes ...................................... 33,400 22,552
Current portion of long-term debt ................... 561,997 606,709
Current portion of capital lease obligations ........ 486,464 478,259
------------ ------------
Total current liabilities ......................... 14,771,528 17,017,403
------------ ------------
Long-term debt, net of current portion ................. 303,058 837,446
Capital lease obligations, net of current portion ...... 795,524 967,247
Deferred taxes ......................................... 110,000 298,701
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 June 30 - 2,245,491
shares and September 30 - 1,909,337 shares ...... 22,455 19,093
Common stock issuable ............................... 461,538 967,788
Additional paid-in capital .......................... 4,798,733 2,261,497
Retained earnings ................................... 12,440,438 9,912,936
------------ ------------
17,723,164 13,161,314
Less: treasury stock, at cost, 187,766 shares ...... (207,953) (207,953)
marketable securities valuation adjustment ... (92,927) (87,969)
------------ ------------
Total stockholders' equity ........................ 17,422,284 12,865,392
------------ ------------
$ 33,402,394 $ 31,986,189
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
---------------------------- ----------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ............................ $ 18,153,573 $ 14,094,912 $ 55,274,715 $ 45,887,876
Cost of sales ........................ 12,531,909 10,923,540 38,242,836 34,383,241
------------ ------------ ------------ ------------
Gross profit ..................... 5,621,664 3,171,372 17,031,879 11,504,635
Selling and administrative expenses .. 3,260,028 3,074,183 9,933,823 9,847,602
Other (income) expense:
Interest income .................. (92,304) (23,772) (188,890) (67,424)
Interest expense ................. 44,588 66,728 141,512 243,974
------------ ------------ ------------ ------------
Income before income taxes ....... 2,409,352 54,233 7,145,434 1,480,483
Provision for income taxes ........... 965,000 38,000 2,904,000 613,000
------------ ------------ ------------ ------------
Net income ........................... $ 1,444,352 $ 16,233 $ 4,241,434 $ 867,483
============ ============ ============ ============
Per common and common equivalent share
Net income ........................... $ .60 $ .01 $ 1.86 $ .41
============ ============ ============ ============
Weighted average number of
shares outstanding ............... 2,394,056 2,134,258 2,276,207 2,108,222
============ ============ ============ ============
Dividends ............................ $ .038 $ .023 $ .094 $ .068
============ ============ ============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Increase (Decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income ............................................ $ 4,241,434 $ 867,483
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ...................... 1,364,534 1,212,732
Deferred income taxes .............................. (60,000) 119,000
Provision for doubtful accounts receivable ......... 91,625 112,777
Gain on sale of fixed assets ....................... (9,650) --
----------- -----------
Total adjustments .................................. 1,386,509 1,444,509
Changes in operating assets and liabilities:
Accounts receivable ................................ 1,026,396 (241,932)
Prepaid expenses and other current assets .......... 1,285 178,325
Accounts payable and accrued expenses .............. (2,434,575) 921,387
Income taxes payable ............................... 214,358 (6,066)
Other, net ......................................... (148,543) 50,210
----------- -----------
Total adjustments and changes ...................... 45,430 2,346,433
----------- -----------
Net cash provided by operating activities .......... 4,286,864 3,213,916
----------- -----------
Cash flows from financing activities:
Changes in note payable, long-term debt and capital
leases (including current portion):
Borrowings ..................................... -- 1,350,000
Repayments ..................................... (958,671) (3,674,973)
Dividends paid ..................................... (184,534) (124,773)
Exercise of stock options .......................... 455,011 80,063
Employee stock purchase plan proceeds .............. 49,940 --
----------- -----------
Net cash used in financing activities .............. (638,254) (2,369,683)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment ................ (769,018) (949,897)
Proceeds from sales of equipment ................... 195,095 --
Net sales (purchases) of marketable securities ..... 100,588 (21,109)
----------- -----------
Net cash used in investing activities .............. (473,335) (971,006)
----------- -----------
Cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents 3,175,275 (126,773)
Cash and cash equivalents at beginning of period ... 1,679,489 1,054,538
----------- -----------
Cash and cash equivalents at end of period ......... $ 4,854,764 $ 927,765
=========== ===========
</TABLE>
Continued on next page.
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended June 30,
(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 ........................................... $ 109,879 $215,144
Income taxes ....................................... $2,740,883 $562,865
</TABLE>
Supplemental disclosures of non-cash investing
and financing activities:
Capital lease obligations:
For the nine months ended June 30, 1995 and June 30, 1994, capital lease
obligations of $216,053 and $162,465, respectively, were incurred for the
leasing of equipment.
Marketable securities valuation adjustment:
For the nine months ended June 30, 1995 and June 30, 1994, $4,958 and
$132,219, net of tax, was added to the marketable securities valuation
adjustment. This represents the net unrealized losses on the investments -
available-for-sale, net, during the period.
Acquisition of business:
During the nine months ended June 30, 1995 and June 30, 1994, $506,250 and
$187,793 of common stock issuable was converted into 63,613 and 26,172
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.
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 nine months ended June 30, 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 nine month periods ended June 30, 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 June 30, 1995
--------------------------------
Sales increased 29% in the quarter ended June 30, 1995 to $18,154,000
from $14,095,000 for the comparable quarter of the prior year. This improvement
is accounted for by a 91% increase in fulfillment services, a 4% increase in
list marketing services, partially offset by a 1% decrease in computer services.
Fulfillment services' increase reflects a 123% increase in the catalog
fulfillment operation, a 81% increase in continuity fulfillment partially offset
by a 65% reduction in inbound telemarketing revenues. Increases in transaction
volume from an existing customer, although at a reduced rate from the quarter
ended March 31, 1995, was the primary reason for the catalog fulfillment
increase. Initial billings to new customers were the primary reason for the
continuity fulfillment 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.
Gross profit increased 77% to $5,622,000 for the current quarter from
$3,171,000 in the comparable quarter of 1994. Gross profit margin was 31% in the
current quarter compared to 23% 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 along
with improved profit margins in the continuity fulfillment operation.
Selling and administrative expenses increased 6% to $3,260,000 in the
current quarter from $3,074,000 in the comparable quarter of 1994. Selling and
administrative expenses, as a percentage of sales, were 18% for the current
quarter and 22% for the comparable period in 1994. The increase in amount of
selling and administrative expenses, when compared to the sales increase of 29%,
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 both the catalog and continuity fulfillment operations and reduced
selling and management personnel and their related expenses.
Net interest income of $48,000 was realized in the current quarter
compared to net interest expense of $43,000 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, a portion of the unsecured line of credit was utilized for
part of the quarter and there were higher levels of long-term debt, associated
with the Catalog Resources, Inc. acquisition, and capital lease obligations
outstanding.
Net income was $1,444,000 ($.60 per share) in the current quarter
compared to $16,000 ($.01 per share) in the comparable 1994 quarter.
Nine Months ended June 30, 1995
-------------------------------
Sales increased 20% for the nine months ended June 30, 1995 to
$55,275,000 from $45,888,000 for the comparable period of the prior year. This
improvement is accounted for by a 57% increase in fulfillment services, a 10%
increase in list marketing services partially offset by a 16% decrease in
computer services' sales. The increase in fulfillment services' sales reflects a
179% increase in the catalog fulfillment operation, a 45% increase in the
continuity fulfillment operation partially offset by a 65% decline in inbound
telemarketing revenues. Increased transaction volume from an existing customer
was the primary reason for the catalog fulfillment increase. Initial billings to
new customers were the primary reason for the continuity fulfillment 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 48% to $17,032,000 for the nine month period from
$11,505,000 in the comparable period of 1994. Gross profit margin was 31%
compared to 25% 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 and the increased revenues and improved profit margins of the continuity
fulfillment operation.
Selling and administrative expenses increased 1% to $9,934,000 from
$9,848,000. Selling and administrative expenses, as a percentage of sales, were
18% for the current nine month period and 21% in the prior year. The increase in
the amount of selling and administrative expenses, when compared to the 20%
revenue gain for the nine month period, and the increase 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.
Net interest income of $47,000 was realized in the current period
compared to net interest expense of $177,000 in 1994. During the current nine
month period, interest earned on invested funds coupled with higher interest
rates more than 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 periods and higher
levels of long-term debt and capital lease obligations outstanding.
Net income was $4,241,000 ($1.86 per share) in the current period
compared to $867,000 ($.41 per share) in the comparable 1994 period.
Financial Condition, Liquidity and Capital Resources
----------------------------------------------------
Working capital was $8,951,000 at June 30, 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 decreases in accounts payable
and other accrued expenses partially offset by a decrease in accounts
receivable.
For the nine month period, cash generated by operations increased
$1,073,000 over such amounts generated in the comparable period of the prior
year. This increase was primarily the result of increases in net income of
$3,374,000 and a decrease in accounts receivable of $1,268,000 offset by a
decrease in accounts payable and accrued expenses of $3,356,000.
In the period ended June 30, 1995, financing activities resulted in a
net use of funds of $638,000 compared to a use of funds of $2,370,000 in 1994.
In both periods, the repayment of debt was the primary use of funds and amounted
to $959,000 in 1995 and $3,675,000 in 1994. In 1994, $1,350,000 was borrowed
primarily to fund capital improvements at Catalog Resources, Inc. (CRI) and for
temporary working capital requirements. In 1995, cash received from the exercise
of employee stock options increased $375,000. Cash used for investing
activities, in the current period, decreased $498,000 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
The Company filed a Form 8-K dated January 25, 1995 in which it reported
that a subsidiary of the Company was a co-defendant in an action filed in
Supreme Court of the State of New York.
Effective June 29, 1995, the parties agreed to a Stipulation of
Discontinuance which settled and discontinued the litigation with prejudice and
without costs to any party.
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. did not file any reports
on Form 8-K during the quarter ended June 30, 1995.
<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
August 8, 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 Nine Months Ended June 30,
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
-------------------------- --------------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average shares outstanding .......... 2,043,799 1,990,089 2,016,485 1,960,631
Weighted average - dilutive stock options .... 328,538 122,450 238,003 125,872
Shares issuable in connection with the
acquisition of Catalog Resources, Inc. ...... 21,719 21,719 21,719 21,719
---------- ---------- ---------- ----------
2,394,056 2,134,258 2,276,207 2,108,222
========== ========== ========== ==========
Net income ................................... $1,444,352 $ 16,233 $4,241,434 $ 867,483
Earnings per share and common equivalent share $ .60 $ .01 $ 1.86 $ .41
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 4,854,764
<SECURITIES> 539,832
<RECEIVABLES> 17,422,518
<ALLOWANCES> 624,000
<INVENTORY> 209,436
<CURRENT-ASSETS> 23,722,250
<PP&E> 12,105,479
<DEPRECIATION> 7,236,875
<TOTAL-ASSETS> 33,402,394
<CURRENT-LIABILITIES> 14,771,528
<BONDS> 0
<COMMON> 22,455
0
0
<OTHER-SE> 17,399,829
<TOTAL-LIABILITY-AND-EQUITY> 33,402,394
<SALES> 0
<TOTAL-REVENUES> 55,274,715
<CGS> 0
<TOTAL-COSTS> 38,242,836
<OTHER-EXPENSES> 9,986,523
<LOSS-PROVISION> 91,625
<INTEREST-EXPENSE> 141,512
<INCOME-PRETAX> 7,145,434
<INCOME-TAX> 2,904,000
<INCOME-CONTINUING> 4,241,434
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,241,434
<EPS-PRIMARY> 1.86
<EPS-DILUTED> 0
</TABLE>
