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, 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 (973) 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, 1998, was 4,802,131.
<PAGE>
LCS INDUSTRIES, INC.
AND SUBSIDIARIES
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
As of December 31, 1997 (Unaudited) and
September 30, 1997
Consolidated Statements of Income
For the Three Months Ended
December 31, 1997 and 1996 (Unaudited)
Consolidated Statements of Cash Flows
For the Three Months Ended
December 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 6. Exhibits and Reports on Form 8-K
<PAGE>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, September 30,
1997 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................... $ 15,031,334 $ 14,619,271
Investments - held-to-maturity .............................. 14,745,647 14,410,101
Accounts receivable (less allowance
for doubtful accounts: December 31 - $560,000
and September 30 - $496,000) ............................ 23,342,574 23,163,774
Prepaid expenses and other current assets ................... 1,459,077 1,460,990
Deferred taxes .............................................. 696,000 684,000
------------ ------------
Total current assets ...................................... 55,274,632 54,338,136
------------ ------------
Investments - available-for-sale, net .......................... 26,512 123,708
Property and equipment, net .................................... 6,767,692 7,093,790
Goodwill (net of accumulated amortization: December
31 - $877,792 and September 30 - $806,204) ................. 7,209,389 7,280,977
Other assets ................................................... 692,860 672,656
------------ ------------
$ 69,971,085 $ 69,509,267
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................ $ 13,441,505 $ 14,798,326
Accrued salaries and commissions ............................ 2,697,648 3,127,141
Other accrued expenses ...................................... 3,646,516 3,899,876
Income taxes payable ........................................ 1,317,045 290,407
Current portion of long-term debt ........................... 1,604,473 1,087,511
Current portion of capital lease obligations ................ 120,401 211,580
Deferred revenue ............................................ 2,849,199 4,124,699
------------ ------------
Total current liabilities ................................. 25,676,787 27,539,540
------------ ------------
Long-term debt, net of current portion ......................... 3,331,238 3,444,533
Deferred taxes ................................................. 205,000 249,000
Deferred compensation .......................................... 156,000 --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(continued)
December 31, September 30,
1997 1997
------------ ------------
(Unaudited)
<S> <C> <C>
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 - 5,005,442
shares and September 30 - 4,854,847 shares .............. 50,054 48,548
Common stock issuable ....................................... 1,071,532 1,490,431
Additional paid-in capital .................................. 9,383,718 8,702,971
Retained earnings ........................................... 30,659,261 28,245,206
------------ ------------
41,164,565 38,487,156
Less: Treasury stock, at cost, December 31 - 205,996 shares
and September 30 - 187,766 ...................... (562,505) (207,953)
Available-for-sale securities valuation adjustment,
net of deferred income taxes .................... -- (3,009)
------------ ------------
Total stockholders' equity ................................ 40,602,060 38,276,194
------------ ------------
$ 69,971,085 $ 69,509,267
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended December 31,
(Unaudited)
1997 1996
------------ ------------
<S> <C> <C>
Net sales .................................. $ 25,646,160 $ 26,231,216
Cost of sales .............................. 17,771,754 18,247,366
------------ ------------
Gross profit ............................... 7,874,406 7,983,850
Selling and administrative expenses ........ 4,180,503 4,494,773
Other (income) expense:
Dividend and interest income ............ (420,580) (336,959)
Interest expense ........................ 96,706 124,461
Other income ............................ (210,000) --
------------ ------------
Income before income taxes ................. 4,227,777 3,701,575
Provision for income taxes ................. 1,640,000 1,516,000
------------ ------------
Net income ................................. $ 2,587,777 $ 2,185,575
============ ============
Per common and common equivalent share:
Basic earnings ............................. $ .55 $ .48
============ ============
Diluted earnings ........................... $ .50 $ .43
============ ============
Dividends .................................. $ .038 $ .025
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31,
(Unaudited)
1997 1996
------------ ------------
<S> <C> <C>
Increase (Decrease) in cash and cash equivalents
Cash flows from operating activities:
Net income ......................................... $ 2,587,777 $ 2,185,575
------------ ------------
Adjustments to reconcile net income to net cash
provided by operating
activities:
Depreciation and amortization .................. 700,786 616,345
Deferred income taxes .......................... (58,000) 65,000
Provision for doubtful accounts receivable ..... 80,000 30,000
Deferred compensation .......................... 156,000 --
------------ ------------
Total adjustments .............................. 878,786 711,345
Changes in operating assets and liabilities:
Accounts receivable ............................ (258,800) 762,351
Prepaid expenses and other current assets ...... (234,314) (106,735)
Accounts payable and accrued expenses .......... (1,986,754) 67,188
Income taxes payable ........................... 1,289,560 441,807
Deferred revenue ............................... (1,275,500) (266,805)
Other assets ................................... (20,204) 93,435
------------ ------------
Total adjustments and changes .................. (1,607,226) 1,702,586
------------ ------------
Net cash provided by operating activities .......... 980,551 3,888,161
------------ ------------
Cash flows from financing activities:
Changes in note payable, long-term debt and capital
leases (including current portion):
Repayments ..................................... (246,682) (336,582)
Dividends paid ..................................... (173,671) (109,652)
Exercise of stock options .......................... 120,628 469,590
Employee Stock Purchase Plan and employment
agreement proceeds ............................. 31,373 39,295
------------ ------------
Net cash (used in) provided by financing activities (268,352) 62,651
------------ ------------
Cash flows from investing activities:
Additions to property and equipment ................ (303,100) (343,602)
Net sales of investments ........................... 2,964 2,068,600
------------ ------------
Net cash (used in) provided by investing activities (300,136) 1,724,998
------------ ------------
Cash and cash equivalents:
Net increase in cash and cash equivalents .......... 412,063 5,675,810
Cash and cash equivalents at beginning of period ... 14,619,271 11,893,982
------------ ------------
Cash and cash equivalents at end of period ......... $ 15,031,334 $ 17,569,792
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended December 31,
(Unaudited)
(continued)
1997 1996
------------ ------------
<S> <C> <C>
Supplementary disclosures of cash flow information:
Cash paid during the period for:
Interest ....................................... $ 44,055 $ 61,960
Income taxes ................................... $ 233,932 $ 585,817
</TABLE>
Supplemental disclosures of non-cash investing
and financing activities:
Valuation adjustment:
At December 31, 1997, the account was no longer required as a result of
selling the available-for-sale securities portfolio to which the
valuation adjustment related. 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.
Stock dividends:
On October 7, 1997, 144 shares of the Company's common stock were paid as
dividends upon exchange of 33 shares of the Company's "old" common stock.
Treasury stock:
During the quarter ended December 31, 1997, 18,230 shares of the
Company's outstanding Common Stock were received in exchange for options
exercised covering 132,000 shares of Common Stock.
Long-term debt:
As a result of Amendment No. 2 of the Catalog Resources, Inc. purchase
agreement, (as explained in Note 4 to the Consolidated Financial
Statements), additional long-term debt of $506,250 was recorded, offset
by charges to common stock issuable of $418,899 and additional paid-in
capital of $87,351.
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 (as amended by Form 10-K/A-1) for the year
ended September 30, 1997. The results of operations for the three months ended
December 31, 1997 are not necessarily indicative of the results for the full
year. The September 30, 1997 Balance Sheet was derived from the audited Balance
Sheet at that date.
2) Other income for the quarter ended December 31, 1997 represents a payment
from McIntyre and King, Ltd. ("M&K") representing final settlement of a portion
of the down-payment made in connection with the 1997 rescinded purchase
agreement. During fiscal 1997, the Company had written off its entire investment
in M&K since any recovery, at that time, was uncertain.
3) For the financial statements ended December 31, 1997, the Company has adopted
the provisions of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share", issued in March, 1997. The Statement requires dual p
resentation of basic and diluted earnings per share by entities with complex
capital structures. Basic earnings per share includes no dilution and is
computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution of securities that could
share in the earnings of the Company. The prior year's earnings per share
amounts have been restated to reflect the provisions of SFAS No. 128.
4) On December 30, 1997, the Company and former shareholders of Catalog
Resources, Inc. agreed to Amendment No. 2 of the purchase agreement dated April
1, 1993 and amended August 1, 1994. This Amendment provides for the payment made
January 2, 1998 of $1,012,500 to be 100% in cash compared to the previously
agreed 50% in cash and 50% in Common Stock of the Company, subject to a maximum
number of shares to be issued of 660,000. Accordingly, the current portion of
long-time debt at December 31, 1997 was increased by $506,250 (50% of the
$1,012,500 payment). This was offset by a reduction in common stock issuable of
$418,899, representing the present value at September 30, 1995 of the originally
anticipated stock issuance, and a charge to additional paid-in capital of
$87,351.
As a result of Amendment No. 2, the parties have agreed to reduce the
maximum number of shares issuable under the amended agreement by the shares
which would have been issued on January 2, 1998 based on the provisions of the
original agreement. The revised maximum number of shares issuable is 628,020 of
which 538,287 shares have been previously issued.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Three Months ended December 31, 1997
Revenues decreased 2% in the quarter ended December 31, 1997 to
$25,646,000 from $26,231,000 for the comparable quarter of the prior year. This
decline is accounted for by a 2% increase in list marketing services offset by a
17% decrease in computer services while fulfillment services were comparable to
the prior year. The increase in list marketing revenues resulted generally from
an expanded customer base and increased volume with existing customers. The
lower computer services revenues reflect reduced billings, when compared to the
prior year, for the last phase of the three-year $40 million contract to build
and manage a marketing database for a major non-U.S. communications company.
This initial contract will be completed by June 30, 1998. As announced on
January 6, 1998, the Company has entered into an additional $6.0 million one
year contract with this non-U.S. communications company to provide computer
services commencing July 1,1998. Although revenues for fulfillment services were
comparable, in total year over year, the components reflect a 23% increase in
continuity services, total decrease of 77% in telemarketing services and a 12%
decrease in catalog fulfillment. The increase in continuity services is
primarily a result of increased billings to existing customers. The decrease in
telemarketing services is in line with the Company's program to de-emphasize
this activity. The decrease in catalog fulfillment revenues reflects the impact
of the loss of billings to several customers upon their acquisition by third
parties.
Gross profit decreased 1% to $7,874,000 for the current quarter from
$7,984,000 in the comparable quarter of 1996. Gross profit margin improved to
31% in the current quarter compared to 30% in 1996. The decrease in gross profit
amount primarily resulted from the decrease in revenues of computer services, as
described above, and catalog fulfillment services partially offset by the margin
generated from the increased continuity revenues. The higher gross profit margin
resulted from improved margins from list marketing revenues partially offset by
a decline at the catalog fulfillment operation.
Selling and administrative expenses decreased 7% to $4,181,000 in the
current quarter from $4,495,000 in the comparable quarter of 1996. Selling and
administrative expenses, as a percentage of sales, were 16% for the current
quarter and 17% for the comparable period in 1996. The decrease in amount and
percentage of selling and administrative expenses is primarily the result of
lower executive compensation and travel expenses.
Net dividend and interest income was $324,000 in the current quarter
compared to $212,000 in 1996. Dividend and interest income increased $84,000 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 decrease in interest expense, quarter over quarter, of $28,000
resulted primarily from reduced debt and capital lease obligations. The
unsecured line of credit held available for the Company was not utilized in
either quarter.
<PAGE>
During the current quarter, a payment of $210,000 was received from
McIntyre & King, Ltd. ("M&K") and recorded as other income. This payment
represents final settlement of a portion of the down-payment made in connection
with the 1997 rescinded purchase agreement. During fiscal 1997, the Company had
written off its entire investment in M&K since any recovery, at that time, was
uncertain.
Net income was $2,588,000 ($.50 per share diluted) in the current
quarter compared to $2,186,000 (.43 per share diluted) in the comparable 1996
quarter.
Financial Condition, Liquidity and Capital Resources
Working capital was $29,598,000 at December 31, 1997 compared to
$26,799,000 at September 30, 1997. Current assets increased $936,000 principally
from increases in cash and investments-held-to-maturity. Current liabilities
decreased $1,863,000 primarily as a result of decreases in accounts payable,
deferred revenue and accrued salaries and commissions offset by increases in
current portion of long-term debt and income taxes payable. At December 31,
1997, the ratio of long-term debt to equity was .08 to 1.
For the current quarter, cash generated by operations decreased
$2,908,000 over such amounts generated in the comparable quarter of the prior
year. This decrease was primarily attributed to decreases in adjustments to net
income and changes in operating assets and liabilities of $3,310,000 offset by
an increase in net income of $402,000. The decrease in adjustments to net income
and changes in operating assets and liabilities resulted primarily from an
increase in accounts receivable of $1,021,000, decreases in accounts payable and
accrued expenses of $2,054,000 and deferred revenue of $1,009,000 partially
offset by an increase in income taxes of $848,000.
During the current quarter, funds used by financing activities
increased $331,000 compared to the comparable quarter of the prior year. This
usage resulted from reduced receipts from the exercise of employee stock options
of $349,000, increased payment of dividends of $64,000 partially offset by a
decrease in the repayment of debt of $90,000. For the same period, cash used for
investing activities increased $2,025,000 primarily as a result of lower
proceeds from the sales of investments of $2,066,000 offset by a reduction in
additions to property and equipment of $41,000.
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, as amended, the Company
paid $1,012,500 (100% in cash-see Note 4 to the consolidated financial
statements for further explanation) on January 2, 1998. Further, such amounts
will be payable each January 1 through 2002 totaling a maximum of $4,050,000.
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 will be sufficient to
meet cash flow needs during the fiscal year.
Year 2000 Issue
Certain of the Company's operational computer programs use two digits
to identify a year in the date field which does not consider the impact, if any,
of the upcoming change in the century. The Company anticipates, at a cost not
material to financial results, the timely completion of any programming needed
to address this issue and result in successful computer processing in the year
2000 and beyond.
<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, 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
February 10, 1998
LCS INDUSTRIES, INC.
(Registrant)
By: /s/ William Rella
-----------------
William Rella
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, 1997
EXHIBIT
<PAGE>
INDEX TO EXHIBIT
Exhibit
No. Description
--- -----------
11 Statement re: Computation of Earnings Per Share
EXHIBIT 11
<TABLE>
<CAPTION>
LCS INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE AND
COMMON EQUIVALENT SHARE
For the Three Months Ended December 31,
(Unaudited)
Three Months
---------------------------
1997 1996
---------- ----------
<S> <C> <C>
Basic earnings per share:
Weighted average shares outstanding .......... 4,746,850 4,533,500
========== ==========
Net income ................................... $2,587,777 $2,185,575
Basic earnings per share ..................... $ .55 $ .48
========== ==========
Diluted earnings per share:
Weighted average shares outstanding .......... 4,746,850 4,533,500
Weighted average - dilutive stock options .... 376,831 399,271
Shares issuable in connection with the
acquisition of Catalog Resources, Inc. .... 89,733 160,475
---------- ----------
5,213,414 5,093,246
========== ==========
Net income ................................... $2,587,777 $2,185,575
Diluted earnings per share and common
equivalent share .......................... $ .50 $ .43
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 15,031,334
<SECURITIES> 14,745,647
<RECEIVABLES> 23,902,574
<ALLOWANCES> 560,000
<INVENTORY> 199,409
<CURRENT-ASSETS> 55,274,632
<PP&E> 19,256,437
<DEPRECIATION> 12,488,745
<TOTAL-ASSETS> 69,971,085
<CURRENT-LIABILITIES> 25,676,787
<BONDS> 0
0
0
<COMMON> 50,054
<OTHER-SE> 40,552,006
<TOTAL-LIABILITY-AND-EQUITY> 69,971,085
<SALES> 0
<TOTAL-REVENUES> 25,646,160
<CGS> 0
<TOTAL-COSTS> 17,771,754
<OTHER-EXPENSES> 4,180,503
<LOSS-PROVISION> 80,000
<INTEREST-EXPENSE> 96,706
<INCOME-PRETAX> 4,227,777
<INCOME-TAX> 1,640,000
<INCOME-CONTINUING> 2,587,777
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,587,777
<EPS-PRIMARY> .55
<EPS-DILUTED> .50
</TABLE>
