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, 1997
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 2, 1997, was 4,654,728.
<PAGE>
LCS INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
As of March 31, 1997 (Unaudited) and
September 30, 1996
Consolidated Statements of Operations
For the Three Months and Six Months Ended
March 31, 1997 and 1996 (Unaudited)
Consolidated Statements of Cash Flows
For the Six Months Ended
March 31, 1997 and 1996 (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 4. Submission of Matters to a Vote of
Security-Holders
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
March 31, September 30,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 14,951,215 $ 11,893,982
Investments - held-to-maturity ................... 11,813,825 10,435,026
Accounts receivable (less allowance
for doubtful accounts: March 31 - $524,000
and September 30 - $ 627,000)............... 22,759,964 24,519,050
Prepaid expenses and other current assets......... 1,236,013 1,596,819
Deferred taxes ................................... 293,000 338,000
------------ ------------
Total current assets ........................... 51,054,017 48,782,877
------------ ------------
Investments - available-for-sale, net................. 124,384 369,722
Property and equipment, net .......................... 7,184,502 7,549,229
Goodwill (net of accumulated amortization: March
31 - $663,031 and September 30 - $519,855)........ 7,424,150 7,567,326
Other assets ......................................... 669,109 700,793
------------ ------------
$ 66,456,162 $ 64,969,947
============ ============
<PAGE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
March 31, September 30,
1997 1996
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................. $ 12,275,582 $ 14,726,387
Accrued salaries and commissions................... 2,279,189 2,389,837
Other accrued expenses ............................ 3,272,783 2,513,841
Income taxes payable .............................. 42,064 215,635
Current portion of long-term debt.................. 1,050,147 1,047,989
Current portion of capital lease obligations....... 376,929 390,399
Deferred revenue .................................. 7,488,847 8,139,767
------------ ------------
Total current liabilities ....................... 26,785,541 29,423,855
------------ ------------
Long-term debt, net of current portion................ 3,668,883 4,331,542
Capital lease obligations, net of current portion..... 66,747 250,997
Deferred taxes ....................................... 155,000 103,000
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 March 31 - 4,838,500.
shares and September 30 - 4,611,487 shares..... 48,385 46,115
Common stock issuable ............................. 1,490,431 1,945,983
Additional paid-in capital ........................ 8,549,067 7,223,263
Retained earnings ................................. 25,903,472 21,887,737
------------ ------------
35,991,355 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.... (3,411) (34,592)
------------ ------------
Total stockholders' equity ..................... 35,779,991 30,860,553
------------ ------------
$ 66,456,162 $ 64,969,947
============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended March 31,
(Unaudited)
Three Months Six Months
------------------------------------------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales ............................. $ 24,839,137 $ 22,347,757 $ 51,070,353 $ 48,001,814
Cost of sales ......................... 17,059,924 15,451,671 35,307,290 32,920,594
------------ ------------ ------------ ------------
Gross profit ....................... 7,779,213 6,896,086 15,763,063 15,081,220
Selling and administrative expenses .. 4,443,888 4,003,831 8,938,661 8,035,507
Other (income) expense:
Dividend and interest income ....... (348,982) (209,986) (685,941) (392,681)
Interest expense ................... 109,578 92,840 234,039 193,299
------------ ------------ ------------ ------------
Income before income taxes ............ 3,574,729 3,009,401 7,276,304 7,245,095
Provision for income taxes ............ 1,462,000 1,235,000 2,978,000 2,962,000
------------ ------------ ------------ ------------
Net income ............................ 2,112,729 1,774,401 $ 4,298,304 4,283,095
============ ============ ============ ============
Per common and common equivalent share:
Primary earnings ...................... $ .41 $ .35 $ .84 $ .85
============ ============ ============ ============
Fully diluted earnings ................ $ .41 $ .34 $ .84 $ .82
============ ============ ============ ============
Dividends ............................. $ .038 $ .025 $ .063 $ .044
============ ============ ============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31,
(Unaudited)
1997 1996
------------ ------------
<S> <C> <C>
Increase (Decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income ........................................ $ 4,298,304 $ 4,283,095
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................. 1,247,865 1,141,705
Deferred income taxes ......................... 75,000 (5,000)
Provision for doubtful accounts receivable .... 60,000 60,000
Gain on sale of available-for-sale securities . (474) --
------------ ------------
Total adjustments ............................. 1,382,391 1,196,705
Changes in operating assets and liabilities:
Accounts receivable ........................... 1,699,086 2,813,562
Prepaid expenses and other current assets ..... 80,231 752,362
Accounts payable and accrued expenses ......... (1,737,229) (2,529,682)
Income taxes payable .......................... 165,429 235,914
Deferred revenue .............................. (650,920) 4,308,209
Other assets .................................. 31,684 78,623
------------ ------------
Total adjustments and changes ................. 970,672 6,855,693
------------ ------------
Net cash provided by operating activities ... 5,268,976 11,138,788
------------ ------------
Cash flows from financing activities:
Changes in long-term debt and capital
leases (including current portion):
Borrowings .................................... -- 1,785,000
Repayments .................................... (923,503) (783,845)
Dividends paid .................................... (282,569) (183,022)
Exercise of stock options ......................... 470,932 547,493
Employee Stock Purchase Plan and employment
agreement stock purchase proceeds ............. 62,590 78,746
------------ ------------
Net cash (used in) provided by financing activities (672,550) 1,444,372
------------ ------------
<PAGE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended March 31,
(Unaudited)
(continued)
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from investing activities:
Additions to property and equipment .............. (739,962) (2,601,101)
Net purchases of investments-held-to-maturity ..... (799,231) --
------------ ------------
Net cash (used in) investing activities ........... (1,539,193) (2,601,101)
------------ ------------
Cash and cash equivalents:
Net increase in cash and cash equivalents ......... 3,057,233 9,982,059
Cash and cash equivalents at beginning of period .. 11,893,982 8,630,831
------------ ------------
Cash and cash equivalents at end of period ....... $ 14,951,215 $ 18,612,890
============ ============
Supplementary disclosures of cash flow information:
Cash paid during the period for:
Interest....................................... $ 170,117 $ 102,107
Income taxes................................... $ 2,892,559 $ 2,248,738
Supplemental disclosures of non-cash investing
and financing activities:
Valuation adjustment:
For the six months ended March 31, 1997, the account was adjusted to
reflect an increase in market values of the available-for-sale
securities portfolio of $31,181, net of deferred income taxes. For the
six months ended March 31, 1996, $8,513, 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. On January 5, 1996, 360 shares of common stock were paid as
dividends upon exchange of 150 shares of the Company's "old" common
stock.
Acquisition of business:
During the six month periods ended March 31, 1997 and 1996, $455,552
and $461,538 of common stock issuable was converted into 38,762 and
34,621 issued shares of the Company's common stock, in accordance with
the terms of the Catalog Resources, Inc. purchase agreement, as
amended.
See Notes to Consolidated Financial Statements.
</TABLE>
<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 six months ended March 31, 1997 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.
2) On April 15, 1997, the Company announced the signing of a definitive
agreement to acquire McIntyre & King Ltd., a UK based telemarketing, fulfillment
and mailing services company. The purchase price of approximately $1.6 million
is payable over two years.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Three Months ended March 31, 1997
Sales increased 11% in the quarter ended March 31, 1997 to
$24,839,000 from $22,348,000 for the comparable quarter of the prior year. This
improvement is accounted for by 12% increases in both computer and list
marketing services and a 10% increase in fulfillment services. Computer services
increase reflects the revenues related to the $40 million contract 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 on the
percentage-of-completion method of accounting measured by the percentage of
labor hours incurred to date to the total labor hours required for the contract.
The list marketing revenue increase resulted primarily from increased volumes
with continuing customers. The fulfillment services increase reflects 19%
increases in both continuity and catalog fulfillment services partially offset
by decreases in outbound telemarketing (72%) and inbound telemarketing (59%).
The continuity and catalog fulfillment services increases reflect revenues from
new customers added since the prior fiscal period and increased volume from
continuing customers. 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. The decrease in inbound telemarketing is part of
the Company's strategic plan to de-emphasize this service.
Gross profit increased 13% to $7,779,000 for the current quarter from
$6,896,000 in the comparable quarter of 1996. Gross profit margin was 31% in
each period. The increase in gross profit amount resulted primarily from the
increased sales volumes.
Selling and administrative expenses increased 11% to $4,444,000 in
the current quarter from $4,004,000 in the comparable quarter of 1996. Selling
and administrative expenses, as a percentage of sales, were 18% in each period.
The increase in amount of selling and administrative expenses is the result of
the overall increase in sales and increased professional fees combined with the
mix of services rendered.
Net dividend and interest income of $239,000 was realized in the
current quarter compared to $117,000 in the comparable 1996 quarter. Dividend
and interest income increased $139,000 in the current fiscal quarter as a result
of a higher level of funds available for short-term investment coupled with
higher interest rates during the current quarter. The increase in interest
expense quarter over quarter of $17,000 resulted from interest on a $2,500,000
five-year term loan entered into by Catalog Resources, Inc. (CRI). Proceeds from
the loan were received in March and June, 1996 and were used to fund the
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 $2,113,000 ($.41 per share-fully diluted) in the
current quarter compared to $1,774,000 ($.34 per share-fully diluted) in the
comparable 1996 quarter.
<PAGE>
Six Months ended March 31, 1997
Sales increased 6% for the six months ended March 31, 1997 to
$51,070,000 from $48,002,000 for the comparable period of the prior year. This
improvement is represented by a 10% increase in fulfillment services, a 7%
increase in list marketing services partially offset by a 2% decrease in
computer services. The increase in fulfillment services reflects increases in
continuity fulfillment services (17%), catalog fulfillment services (7%) and
inbound telemarketing (46%) partially offset by a 70% decline in outbound
telemarketing. 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, during the first quarter of the current fiscal year,
although the Company continues as a strategic plan, to de-emphasize this
service. The oubound telemarketing decrease resulted from the same circumstances
as described in the current quarter section above. The list marketing revenue
increase resulted primarily from increased volumes with continuing customers.
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.
Fiscal 1997 includes the revenues from this continuing contract, the provisions
of which are as described in the current quarter section above.
Gross profit increased 5% to $15,763,000 for the six month period
from $15,081,000 in the comparable period of 1996. Gross profit margin was 31%
in each six month period. The increase in gross profit amount resulted primarily
from the increased sales volumes.
Selling and administrative expenses increased 11% to $8,939,000 from
$8,036,000 in 1996. Selling and administrative expenses, as a percentage of
sales, were 18% for the current six month period and 17% in the prior year. The
increase in the amount and percentage of selling and administrative expenses is
the result of the overall increase in sales volume and higher professional fees
combined with the mix of services rendered.
Net dividend and interest income of $452,000 was realized in the
current six month period compared to $199,000 in the comparable period in 1996.
Dividend and interest income increased $293,000 in the current six month period
as a result of a higher level of funds available for short-term investment. The
increase in interest expense period over period of $41,000 resulted from the
$2,500,000 loan entered into by CRI, as described above. The unsecured line of
credit available was not utilized in either period.
Net income was $4,298,000 ($.84 per share-fully diluted) in the
current period compared to $4,283,000 ($.82 per share-fully diluted) in the
comparable 1996 period.
Financial Condition, Liquidity and Capital Resources
Working capital was $24,268,000 at March 31, 1997 compared to
$19,359,000 at September 30, 1996. Fluctuations in the components of working
capital resulted primarily from increases in cash and cash equivalents,
investments-held-to-maturity and decreases in accounts payable and deferred
revenue partially offset by decreases in accounts receivable and prepaid
expenses and other current assets and an increase in other accrued expenses.
<PAGE>
For the six month period, cash generated by operations decreased
$5,870,000 over such amounts generated in the comparable period of the prior
year. This decrease was primarily the result of decreases in deferred revenue of
$4,959,000 and increases in accounts receivable of $1,114,000 and prepaid
expenses and other current assets of $672,000 partially offset by increases in
accounts payable and accrued expenses of $792,000 and depreciation of $106,000.
In the six month period ended March 31, 1997, financing activities
used funds of $673,000 compared to providing funds of $1,444,000 in 1996. In
both periods, the repayment of debt was the primary use of funds and amounted to
$924,000 in 1997 and $784,000 in 1996. In March, 1996, $1,785,000 was borrowed
under the terms of a $2.5 million five year term loan to substantially fund the
expansion of warehouse and office facilities at CRI. Cash used for investing
activities, in the current period, decreased $1,062,000 compared to 1996 due to
reduced additions to property and equipment of $1,861,000 partially offset by
net purchases of investments-held-to-maturity of $799,000.
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.
On April 15, 1997, the Company announced the signing of a definitive
agreement to acquire McIntyre & King Ltd., a UK based telemarketing, fulfillment
and mailing services company. The purchase price of approximately $1.6 million
is payable over two years. The Company intends to provide at least $2.0 million
over the next year for expansion, capital equipment and working capital.
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 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of shareholders was held on February 11,
1997.
(b) Shareholders elected to the Board of Directors Mr. Bernard
Ouziel. Mr. Arnold J. Scheine, Mr. Marvin Cohen and Mr. Joseph R.
Barbaro continued as members of the Board of Directors.
(c) The election of Mr. Ouziel was by a vote of 3,327,738 for and
301,974 withheld. There were 761,164 broker non-votes.
(d) Deloitte & Touche LLP was elected to serve as the Company's
independent auditors by a vote of 3,629,712 for, 9,095 against and
5,873 abstentions. There were 758,609 broker non-votes.
(e) Granting of non-qualified stock options to Mr. Arnold J.
Scheine, President and Chief Executive Officer and Mr. Marvin Cohen,
Senior Vice President and Secretary, to purchase 23,600 and 11,800
shares, respectively, of the Company's Common Stock, par value $.01
was approved by a vote of 1,856,508 for, 810,166 against and 16,762
abstentions. There were 1,707,440 broker non votes.
(f) The 1996 Non-Employee Directors Stock Option Plan was
approved by a vote of 1,954,241 for, 711,026 against and 18,168
abstentions. There were 1,707,441 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 11 - Computation of earnings per share
(b) Reports on Form 8-K - LCS Industries, Inc. did not file any
reports on Form 8-K during the quarter ended March 31, 1997.
<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 12, 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
Six Months Ended March 31, 1997
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 and Six Months Ended March 31,
(Unaudited)
Three Months Six Months
----------------------------------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary earnings per share:
Weighted average shares outstanding ....... 4,649,076 4,305,825 4,591,288 4,248,833
Weighted average - dilutive stock options . 356,906 717,609 378,089 704,546
Shares issuable in connection with the
acquisition of Catalog Resources, Inc. 121,713 109,339 121,713 109,339
---------- ---------- ---------- ----------
5,127,695 5,132,773 5,091,090 5,062,718
========== ========== ========== ==========
Net income ................................ $2,112,729 $1,774,401 $4,298,304 $4,283,095
Primary earnings per share and common
equivalent share ....................... $ .41 $ .35 $ .84 $ .85
========== ========== ========== ==========
Fully diluted earnings per share:
Weighted average shares outstanding ....... 4,649,076 4,305,825 4,591,288 4,248,833
Weighted average - dilutive stock options . 356,906 807,598 387,588 842,210
Shares issuable in connection with the
acquisition of Catalog Resources, Inc. 121,713 109,339 121,713 109,339
---------- ---------- ---------- ----------
5,127,695 5,222,762 5,100,589 5,200,382
========== ========== ========== ==========
Net income ................................ $2,112,729 $1,774,401 $4,298,304 $4,283,095
Fully diluted earnings per share and common
equivalent share ....................... $ .41 $ .34 $ .84 $ .82
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 14,951,215
<SECURITIES> 11,813,825
<RECEIVABLES> 23,283,964
<ALLOWANCES> 524,000
<INVENTORY> 180,389
<CURRENT-ASSETS> 51,054,017
<PP&E> 17,956,776
<DEPRECIATION> 10,772,277
<TOTAL-ASSETS> 66,456,162
<CURRENT-LIABILITIES> 26,785,541
<BONDS> 0
0
0
<COMMON> 48,385
<OTHER-SE> 35,731,606
<TOTAL-LIABILITY-AND-EQUITY> 66,456,162
<SALES> 0
<TOTAL-REVENUES> 51,070,353
<CGS> 0
<TOTAL-COSTS> 35,307,290
<OTHER-EXPENSES> 8,938,661
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 234,039
<INCOME-PRETAX> 7,276,304
<INCOME-TAX> 2,978,000
<INCOME-CONTINUING> 4,298,304
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,298,304
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
</TABLE>
