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 December 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 February 2, 1996, was 4,257,620.
<PAGE>
LCS INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
As of December 31, 1995 (Unaudited) and
September 30, 1995
Consolidated Statements of Operations
For the Three Months Ended
December 31, 1995 and 1994 (Unaudited)
Consolidated Statements of Cash Flows
For the Three Months Ended
December 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 6. Exhibits and Reports on Form 8-K
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................ $13,441,229 $ 8,630,831
Investments - held-to-maturity ....................... 199,859 199,859
Accounts receivable (less allowance
for doubtful accounts: December 31 - $659,000
and September 30 - $624,000) ..................... 24,541,391 23,815,919
Prepaid expenses and other current assets ............ 1,203,635 1,891,837
Deferred taxes ....................................... 307,000 263,250
----------- -----------
Total current assets ............................... 39,693,114 34,801,696
Investments - available-for-sale, net ................... 797,394 797,583
Property and equipment, net ............................. 6,367,321 5,222,513
Goodwill (net of accumulated amortization: December 31 -
$305,100 and September 30 - $233,500) ............... 7,782,087 7,853,675
Other assets ............................................ 876,205 1,061,166
----------- -----------
$55,516,121 $49,736,633
=========== ===========
</TABLE>
Continued
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
<TABLE>
<CAPTION>
December 31, September 30,
1995 1995
----------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $14,696,053 $15,105,009
Accrued salaries and commissions ..................... 1,718,476 2,076,999
Other accrued expenses ............................... 3,358,214 2,352,477
Income taxes payable ................................. 935,185 --
Current portion of long-term debt .................... 469,169 567,294
Current portion of capital lease obligations ......... 491,506 516,989
Deferred revenue ..................................... 5,795,150 3,614,331
----------- -----------
Total current liabilities .......................... 27,463,753 24,233,099
----------- -----------
Long-term debt, net of current portion .................. 2,777,163 2,804,790
Capital lease obligations, net of current portion ....... 532,703 631,475
Deferred taxes .......................................... 34,500 19,750
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 December 31 - 4,418,311
shares and September 30 - 4,347,886 shares ....... 44,183 43,479
Common stock issuable ................................ 2,407,521 2,407,521
Additional paid-in capital ........................... 5,660,021 5,431,455
Retained earnings .................................... 16,883,256 14,451,854
----------- -----------
24,994,981 22,334,309
----------- -----------
Less: treasury stock, at cost, 187,766 shares ....... (207,953) (207,953)
marketable securities valuation adjustment .... (79,026) (78,837)
----------- -----------
Total stockholders' equity ......................... 24,708,002 22,047,519
----------- -----------
$55,516,121 $49,736,633
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended December 31,
(Unaudited)
<TABLE>
<CAPTION>
Three Months
1995 1994
----------- -----------
C<S> <C> <C>
Net sales .................................... $25,654,057 $18,735,957
Cost of sales ................................ 17,468,923 13,224,354
----------- -----------
Gross profit ................................. 8,185,134 5,511,603
Selling and administrative expenses .......... 4,031,676 3,357,092
Other (income) expense:
Dividend and interest income .............. (182,695) (55,192)
Interest expense .......................... 100,459 43,228
----------- -----------
Income before income taxes ................... 4,235,694 2,166,475
Provision for income taxes ................... 1,727,000 883,000
----------- -----------
Net income ................................... $ 2,508,694 $ 1,283,475
=========== ===========
Per common and common equivalent share:
Net income ................................... $ .49 $ .29
=========== ===========
Weighted average number of
shares outstanding ...................... 5,078,420 4,434,674
=========== ===========
Dividends .................................... $ .019 $ .011
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three Months Ended December 31,
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Increase (Decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income ..................................... $ 2,508,694 $ 1,283,475
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............... 547,712 437,545
Deferred income taxes ....................... (29,000) (3,000)
Provision for doubtful accounts receivable .. 30,000 15,000
Gain on sale of fixed assets ................ -- (3,000)
------------ ------------
Total adjustments ........................... 548,712 446,545
Changes in operating assets and liabilities:
Accounts receivable ......................... (755,472) (135,274)
Prepaid expenses and other current assets ... 688,202 (128,894)
Accounts payable and accrued expenses ....... 238,258 (782,252)
Income taxes payable ........................ 935,185 796,393
Deferred revenue ............................ 2,180,819 --
Other, net .................................. 184,960 (84,675)
------------ ------------
Total adjustments and changes ............... 4,020,664 111,843
------------ ------------
Net cash provided by operating activities ... 6,529,358 1,395,318
------------ ------------
Cash flows from financing activities:
Changes in long-term debt and capital
leases (including current portion):
Repayments ................................. (250,007) (137,193)
Dividends paid ................................. (77,291) (42,153)
Exercise of stock options ...................... 186,654 142,175
Employee stock purchase plan proceeds .......... 42,616 14,940
------------ ------------
Net cash used in financing activities .......... (98,028) (22,231)
------------ ------------
Cash flows from investing activities:
Additions to property and equipment ............ (1,620,932) (288,820)
Proceeds from sales of equipment ............... -- 93,938
------------ ------------
Net cash used in investing activities .......... (1,620,932) (194,882)
------------ ------------
Cash and cash equivalents:
Net increase in cash and cash equivalents ...... 4,810,398 1,178,205
Cash and cash equivalents at beginning of period 8,630,831 1,679,489
------------ ------------
Cash and cash equivalents at end of period ..... $ 13,441,229 $ 2,857,694
============ ============
</TABLE>
Continued on next page.
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 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 ................................... $ 27,738 $ 36,594
Income taxes ............................... $ 331,316 $ 91,818
</TABLE>
Supplemental disclosures of non-cash investing
and financing activities:
Valuation adjustment:
For the three months ended December 31, 1995 and 1994, $189 and $107,148,
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.
Capital lease obligations:
For the quarter ended December 31, 1994, a capital lease obligaton of
$152,525 was incurred for the leasing of equipment. There were no capital
lease obligations entered into during the quarter ended December 31, 1995.
Stock Dividends:
The December 31, 1994 financial statements reflect the 10% stock dividend
(179,929 shares) paid on January 31, 1995 and the 2 for 1 stock split
(2,061,087 shares) paid as a stock dividend on October 24, 1995.
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, 1995. The
results of operations for the three months ended December 31, 1995 and 1994 are
not necessarily indicative of the results for the full year. The September 30,
1995 Balance Sheet was derived from the audited Balance Sheet at that date.
2) Certain reclassifications have been made to the fiscal 1995 financial
statements in order to conform to the fiscal 1996 presentations.
3) For the three month periods ended December 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, and the maximum number of shares currently issuable in
connection with the acquisition of Catalog Resources, Inc. Earnings per share
and the weighted average number of shares outstanding for the quarter ended
December 31, 1994 include the effect of the ten percent stock dividend paid in
January, 1995 and the 2 for 1 stock split paid as a 100% stock dividend in
October, 1995.
4) At the Company's annual meeting held on January 23, 1996, shareholders
approved an increase of 9,000,000 shares in the authorized number of shares of
Common Stock, par value $.01, to 15,000,000 shares.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Three Months ended December 31, 1995
Sales increased 37% in the quarter ended December 31, 1995 to
$25,654,000 from $18,736,000 for the comparable quarter of the prior year. This
improvement is accounted for by a 151% increase in computer services, a 38%
increase in fulfillment services and an 11% increase in list marketing services.
Computer services' increase reflects the revenues related to the $40 million
contract, announced September 6, 1995, to provide computer services through the
building of a marketing database for a major non-U.S. communications company.
The contract extends through June, 1998, subject to early termination
provisions. Revenue is recognized based on the percentage-of-completion method
of accounting measured by the percentage of labor hours incurred to date to the
estimated total labor hours required for the contract. The fulfillment increase
reflects a 79% increase in continuity fulfillment services, an 11% increase in
the catalog fulfillment operation, a 230% increase in outbound telemarketing
services offset partially by a 51% decrease in inbound telemarketing services.
The continuity services' increase reflects revenues from new customers added
since the prior fiscal period. Although catalog services sales increased, this
increase reflects lower than anticipated revenues, as a result of reduced
transaction volume, from the new two-year agreement with a major consumer
products corporation, announced September 11, 1995. This shortfall was more than
offset by increased revenues from several other catalog customers. The list
marketing increase resulted from an expanded customer base and increase volumes
with continuing customers.
Gross profit increased 49% to $8,185,000 for the current quarter from
$5,512,000 in the comparable quarter of 1994. Gross profit margin was 32% in the
current quarter compared to 29% in 1994. The increase in gross profit amount
resulted from the increased sales volumes and the improved overall profit
margin. The improvement in gross profit margin results primarily from the margin
associated with the increased computer services' revenues, as described above,
which have a higher gross profit margin than the Company's overall margin from
its other operations and improved margins in the fulfillment operation. These
positive movements were partially offset by a lower gross profit margin derived
from the catalog fulfillment operation.
Selling and administrative expenses increased 20% to $4,014,000 in
the current quarter from $3,339,000 in the comparable quarter of 1994. Selling
and administrative expenses, as a percentage of sales, were 16% for the current
quarter and 18% for the comparable period in 1994. The increase in amount of
selling and administrative expenses, when compared to the sales increase of 37%,
and the decrease in these costs as a percentage of sales are due primarily to
the lack of selling and administrative expenses associated with the incremental
computer services' revenues partially offset by administrative salaries and
related expenses associated with the facility expansion at the catalog
fulfillment operation.
Net dividend and interest income was $82,000 in the current quarter
compared to $12,000 in 1994. Dividend and interest income increased $128,000 in
the current fiscal period as a result of a higher level of funds available for
short-term investment coupled with higher interest rates in the current fiscal
quarter. The increase in interest expense quarter over quarter of $57,000
resulted from the $2,532,000 in long-term debt recorded at September 30, 1995
for the future payments required in connection with the acquisition of Catalog
Resources, Inc. The unsecured line of credit available to the Company was not
utilized in either quarter.
Net income was $2,509,000 ($.49 per share) in the current quarter
compared to $1,283,000 (.29 per share) in the comparable 1994 quarter.
Financial Condition, Liquidity and Capital Resources
Working capital was $12,229,000 at December 31, 1995 compared to
$10,569,000 at September 30, 1995. Fluctuations in the components of working
capital resulted primarily from the increases in cash and cash equivalents and
accounts receivable and decreases in accounts payable and accrued personnel
costs partially offset by increases in deferred revenue, income taxes payable
and other accrued expenses and a decrease in prepaid expenses and other current
assets.
For the current quarter, cash generated by operations increased
$5,134,000 over such amounts generated in the comparable quarter of the prior
year. This increase was primarily the result of increases in net income of
$1,225,000, prepaid expenses and other current assets of $817,000, accounts
payable and accrued expenses of $1,021,000 and deferred revenue of $2,181,000.
In the quarter ended December 31, 1995, financing activities resulted
in a net use of funds of $98,000 compared to net cash used of $22,000 in 1994.
The increase in funds used in fiscal 1995 primarily resulted from increased
repayments of debt. Cash used for investing activities, in the current quarter,
increased $1,426,000 compared to 1994 due to additions to property and
equipment, primarily for the expansion of warehouse and office facilities at
Catalog Resources, Inc. (CRI). The Company is negotiating a $2.5 million five
year term loan to substantially fund these purchases.
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, 1996. Further,
such amounts will be payable each January 1 through 2002 totaling a maximum of
$6,075,000. The discounted value of these future payments was recorded at
September 30, 1995 since it is probable that the future earnings levels will be
attained which will require the maximum payments to be made.
Management believes cash generated from current operations and other
liquid assets combined with the available bank credit line and the five year
term loan mentioned above will be sufficient to meet cash flow needs during the
fiscal year.
<PAGE>
PART II OTHER INFORMATION
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 December 31, 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
February 12, 1996
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)
LCS INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE AND
COMMON EQUIVALENT SHARE
For the Three Months Ended December 31,
(Unaudited)
<TABLE>
<CAPTION>
Three Months
----------------------------
1995 1994
---------- ----------
<S> <C> <C>
Weighted average shares outstanding .......... 4,191,841 3,931,808
Weighted average - dilutive stock options .... 691,483 307,770
Shares issuable in connection with the
acquisition of Catalog Resources, Inc. .... 195,096 195,096
---------- ----------
5,078,420 4,434,674
========== ==========
Net income ................................... $2,508,694 $1,283,475
Earnings per share and common equivalent share $ .49 $ .29
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> DEC-31-1995
<CASH> 13,441,229
<SECURITIES> 199,859
<RECEIVABLES> 25,200,391
<ALLOWANCES> 659,000
<INVENTORY> 262,981
<CURRENT-ASSETS> 39,693,114
<PP&E> 14,558,165
<DEPRECIATION> 8,190,844
<TOTAL-ASSETS> 55,516,121
<CURRENT-LIABILITIES> 27,463,753
<BONDS> 0
0
0
<COMMON> 44,183
<OTHER-SE> 24,663,819
<TOTAL-LIABILITY-AND-EQUITY> 55,516,121
<SALES> 0
<TOTAL-REVENUES> 25,654,057
<CGS> 0
<TOTAL-COSTS> 17,468,923
<OTHER-EXPENSES> 4,031,676
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 100,459
<INCOME-PRETAX> 4,235,694
<INCOME-TAX> 1,727,000
<INCOME-CONTINUING> 2,508,694
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,508,694
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
