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, 1996
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 3, 1997, was 4,648,753.
<PAGE>
LCS INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
As of December 31, 1996 (Unaudited) and
September 30, 1996
Consolidated Statements of Income
For the Three Months Ended
December 31, 1996 and 1995 (Unaudited)
Consolidated Statements of Cash Flows
For the Three Months Ended
December 31, 1996 and 1995 (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>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1996 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 17,569,792 $ 11,893,982
Investments - held-to-maturity .............................. 8,431,121 10,435,026
Accounts receivable (less allowance
for doubtful accounts: December 31 - $506,000
and September 30 - $627,000) ............................ 23,726,699 24,519,050
Prepaid expenses and other current assets ................... 1,638,858 1,596,819
Deferred taxes .............................................. 284,000 338,000
------------ ------------
Total current assets ...................................... 51,650,470 48,782,877
------------ ------------
Investments - available-for-sale, net .......................... 411,039 369,722
Property and equipment, net .................................... 7,348,074 7,549,229
Goodwill (net of accumulated amortization: December
31 - $591,443 and September 30 - $519,855) ................. 7,495,738 7,567,326
Other assets ................................................... 607,358 700,793
------------ ------------
$ 67,512,679 $ 64,969,947
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $ 14,153,699 $ 14,726,387
Accrued salaries and commissions ............................ 1,946,185 2,389,837
Other accrued expenses ...................................... 3,534,309 2,513,841
Income taxes payable ........................................ 318,441 215,635
Current portion of long-term debt ........................... 968,276 1,047,989
Current portion of capital lease obligations ................ 373,656 390,399
Deferred revenue ............................................ 7,872,962 8,139,767
------------ ------------
Total current liabilities ................................. 29,167,528 29,423,855
------------ ------------
<PAGE>
<CAPTION>
LCS INDUSTRIES, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
December 31, September 30,
1996 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Long-term debt, net of current portion ......................... 4,240,536 4,331,542
Capital lease obligations, net of current portion .............. 164,937 250,997
Deferred taxes ................................................. 131,000 103,000
Stockholders' equity:
Preferred stock $.01 par value; authorized
1,000,000 shares; issued - none
Common stock $.01 par value; authorized
15,000,000 shares; issued December 31 - 4,797,457
shares and September 30 - 4,611,487 shares .............. 47,975 46,115
Common stock issuable ....................................... 1,945,983 1,945,983
Additional paid-in capital .................................. 8,069,289 7,223,263
Retained earnings ........................................... 23,963,660 21,887,737
------------ ------------
34,026,907 31,103,098
Less: treasury stock, at cost, 187,766 shares .............. (207,953) (207,953)
available-for-sale securities valuation adjustment,
net of deferred income taxes ........................ (10,276) (34,592)
------------ ------------
Total stockholders' equity ................................ 33,808,678 30,860,553
------------ ------------
$ 67,512,679 $ 64,969,947
============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended December 31,
(Unaudited)
1996 1995
------------ ------------
<S> <C> <C>
Net sales .................................. $ 26,231,216 $ 25,654,057
Cost of sales .............................. 18,247,366 17,468,923
------------ ------------
Gross profit ............................... 7,983,850 8,185,134
Selling and administrative expenses ........ 4,494,773 4,031,676
Other (income) expense:
Dividend and interest income ............ (336,959) (182,695)
Interest expense ........................ 124,461 100,459
------------ ------------
Income before income taxes ................. 3,701,575 4,235,694
Provision for income taxes ................. 1,516,000 1,727,000
------------ ------------
Net income ................................. $ 2,185,575 $ 2,508,694
============ ============
Per common and common equivalent share:
Net Income ................................. $ .43 $ .49
============ ============
Weighted average number of
shares outstanding .................... 5,093,246 5,078,420
============ ============
Dividends .................................. $ .025 $ .019
============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31,
(Unaudited)
1996 1995
------------ ------------
<S> <C> <C>
Increase (Decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income ......................................... $ 2,185,575 $ 2,508,694
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization .................. 616,345 547,712
Deferred income taxes .......................... 65,000 (29,000)
Provision for doubtful accounts receivable ..... 30,000 30,000
------------ ------------
Total adjustments .............................. 711,345 548,712
Changes in operating assets and liabilities:
Accounts receivable ............................ 762,351 (755,472)
Prepaid expenses and other current assets ...... (106,735) 688,202
Accounts payable and accrued expenses .......... 67,188 238,258
Income taxes payable ........................... 441,807 935,185
Deferred revenue ............................... (266,805) 2,180,819
Other assets ................................... 93,435 184,960
------------ ------------
Total adjustments and changes .................. 1,702,586 4,020,664
------------ ------------
Net cash provided by operating activities ..... 3,888,161 6,529,358
------------ ------------
Cash flows from financing activities:
Changes in long-term debt and capital
leases (including current portion):
Repayments ..................................... (336,582) (250,007)
Dividends paid ..................................... (109,652) (77,291)
Exercise of stock options .......................... 469,590 186,654
Employee Stock Purchase Plan and employment
agreement proceeds ............................. 39,295 42,616
------------ ------------
Net cash provided by (used in) financing activities 62,651 (98,028)
------------ ------------
Cash flows from investing activities:
Additions to property and equipment ................ (343,602) (1,620,932)
Net sales of investments-held-to-maturity .......... 2,068,600 --
------------ ------------
Net cash provided by (used in) investing activities 1,724,998 (1,620,932)
------------ ------------
Cash and cash equivalents:
Net increase in cash and cash equivalents .......... 5,675,810 4,810,398
Cash and cash equivalents at beginning of period ... 11,893,982 8,630,831
------------ ------------
Cash and cash equivalents at end of period ......... $ 17,569,792 $ 13,441,229
============ ============
Continued on next page.
</TABLE>
<PAGE>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Continued from previous page.
<TABLE>
<CAPTION>
For the Years Ended September 30, 1996 1995
-------- --------
<S> <C> <C>
Supplementary disclosures of cash flow information:
Cash paid during the period for:
Interest $ 61,960 $ 27,738
Income taxes $585,817 $331,316
</TABLE>
Supplemental disclosures of non-cash investing
and financing activities:
Valuation adjustment:
For the quarter ended December 31, 1996, the account was adjusted to
reflect an increase in market values of the available-for-sale securities
portfolio of $24,316, net of deferred income taxes. For the three months
ended December 31, 1995, $189, net of deferred income taxes, was added to
the available-for-sale securities valuation adjustment.
Stock Dividend:
On October 24, 1995, 2,061,087 shares of the Company's common stock were
issued as a result of a 2 for 1 stock split paid as a 100% 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, 1996. The
results of operations for the three months ended December 31, 1996 are not
necessarily indicative of the results for the full year. The September 30, 1996
Balance Sheet was derived from the audited Balance Sheet at that date.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Three Months ended December 31, 1996
Sales increased 2% in the quarter ended December 31, 1996 to
$26,231,000 from $25,654,000 for the comparable quarter of the prior year. This
improvement is accounted for by a 10% increase in fulfillment services, a 3%
increase in list marketing services partially offset by a 13% decrease in
computer services. The fulfillment increase includes increases in continuity
fulfillment services (15%), catalog fulfillment services (8%) and inbound
telemarketing services (123%) partially offset by a decline in outbound
telemarketing services (67%). Sales to new customers and increased volume with
continuing customers contributed to the continuity and catalog fulfillment
increases. The inbound telemarketing increase was the result of a special
project completed for a continuing customer although the Company continues, as a
strategic plan, to de-emphasize this service. The outbound telemarketing
decrease resulted from reduced volume under a contract to provide
business-to-consumer services for a telecommunications company and a reduced
customer base. As previously reported, this function has been made an integral
part of the customer service function within continuity fulfillment. Computer
services' decrease was the result of the December, 1995 quarter including sales
from the completion of one major project in North America for a
telecommunications company while launching another previously announced three
year $40 million service project for another non U.S.-communications company.
The current quarter includes the revenues from this continuing contract to
provide computer services through the building of a marketing database. 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.
Gross profit decreased 2% to $7,984,000 for the current quarter from
$8,185,000 in the comparable quarter of 1995. Gross profit margin was 30% in the
current quarter compared to 32% in 1995. The decrease in gross profit amount and
margin primarily resulted from the decrease in sales of computer services, as
described above, which contribute a higher profit margin than other operations.
The decline in computer services' gross profit amount and margin was partially
offset by improvements in both the continuity and catalog fulfillment
operations.
Selling and administrative expenses increased 11% to $4,495,000 in
the current quarter from $4,032,000 in the comparable quarter of 1995. Selling
and administrative expenses, as a percentage of sales, were 17% for the current
quarter and 16% for the comparable period in 1995. The increase in amount and
percentage of selling and administrative expenses is the result of the overall
increase in sales volume combined with the mix of services rendered.
<PAGE>
Net dividend and interest income was $212,000 in the current quarter
compared to $82,000 in 1995. Dividend and interest income increased $154,000 in
the current fiscal period as a result of a higher level of funds available for
short-term investment partially offset by lower interest rates in the current
fiscal quarter. The increase in interest expense quarter over quarter of $24,000
resulted primarily from the $2,500,000 proceeds received in March and June, 1996
in conjunction with a five-year term loan entered into by Catalog Resources to
fund expansion of its warehouse and office facilities. The unsecured line of
credit available to the Company was not utilized in either quarter.
Net income was $2,186,000 ($.43 per share) in the current quarter
compared to $2,509,000 (.49 per share) in the comparable 1995 quarter.
Financial Condition, Liquidity and Capital Resources
Working capital was $22,483,000 at December 31, 1996 compared to
$19,359,000 at September 30, 1996. Fluctuations in the components of working
capital resulted primarily from the increase in cash and cash equivalents and
decreases in accounts payable and accrued salaries and commissions partially
offset by decreases in investments held-to-maturity and accounts receivable and
an increase in other accrued expenses.
For the current quarter, cash generated by operations decreased
$2,641,000 over such amounts generated in the comparable quarter of the prior
year. This decrease was primarily the result of decreases in net income of
$323,000, deferred revenue of $2,448,000, income taxes payable of $493,000 and
increases in prepaid expenses and other current assets of $795,000 and deferred
expenses of $94,000 partially offset by a decrease in accounts receivable of
$1,518,000.
In the quarter ended December 31, 1996, financing activities provided
funds of $63,000 compared to net cash used of $98,000 in 1995 which resulted
from increased receipts from the exercise of stock options of $283,000 partially
offset by increased repayments of debt of $87,000 and increased dividends of
$32,000. Cash provided by investing activities, in the current quarter,
increased $3,346,000 compared to 1995 due to net sales of
investments-held-to-maturity of $2,069,000 coupled with reduced additions to
property and equipment of $1,277,000.
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, 1997. Further,
such amounts will be payable each January 1 through 2002 totaling a maximum of
$5,062,500. The discounted value of these future payments was recorded at
September 30, 1995 since it was 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, 1996.
<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 10, 1997
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)
<PAGE>
LCS INDUSTRIES, INC.
Commission File No. 0-12329
-------
Quarterly Report on Form 10-Q
for the
Three Months Ended December 31, 1996
EXHIBIT
<PAGE>
INDEX TO EXHIBIT
Exhibit
No. Description
--- -----------
11 Statement re: Computation of Per Share Earnings
<TABLE>
<CAPTION>
EXHIBIT 11
LCS INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE AND
COMMON EQUIVALENT SHARE
For the Three Months Ended December 31,
(Unaudited)
1996 1995
---------- ----------
<S> <C> <C>
Weighted average shares outstanding .............. 4,533,500 4,191,841
Weighted average - dilutive stock options ........ 399,271 691,483
Shares issuable in connection with the
acquisition of Catalog Resources, Inc. ........ 160,475 195,096
---------- ----------
5,093,246 5,078,420
========== ==========
Net income ....................................... $2,185,575 $2,508,694
Earnings per share and common equivalent share ... $ .43 $ .49
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 17,569,792
<SECURITIES> 8,431,121
<RECEIVABLES> 24,232,699
<ALLOWANCES> 506,000
<INVENTORY> 233,730
<CURRENT-ASSETS> 51,650,470
<PP&E> 17,642,919
<DEPRECIATION> 10,294,845
<TOTAL-ASSETS> 67,512,679
<CURRENT-LIABILITIES> 29,167,528
<BONDS> 0
0
0
<COMMON> 47,975
<OTHER-SE> 33,760,703
<TOTAL-LIABILITY-AND-EQUITY> 67,512,679
<SALES> 0
<TOTAL-REVENUES> 26,231,216
<CGS> 0
<TOTAL-COSTS> 18,247,366
<OTHER-EXPENSES> 4,494,773
<LOSS-PROVISION> 30,000
<INTEREST-EXPENSE> 124,461
<INCOME-PRETAX> 3,701,575
<INCOME-TAX> 1,516,000
<INCOME-CONTINUING> 2,185,575
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,185,575
<EPS-PRIMARY> .43
<EPS-DILUTED> 0
</TABLE>
