================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
Commission File Number 0-19378
LIUSKI INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-3065217
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6585 Crescent Drive, Norcross, Georgia 30071
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 447-9454
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 (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- --
As of March 31, 1996, the Registrant had 4,380,525 shares of Common Stock,
$.01 par value per share outstanding.
===============================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Condensed Consolidated Financial Statements:
Balance sheets as of March 31, 1996 (unaudited)
and December 31, 1995.....................................................3
Statements of income for the three months
ended March 31, 1996 and March 31, 1995(unaudited)........................4
Statements of cash flows for the three months ended March 31, 1996
and March 31, 1995
(unaudited)................................................................5
Notes to Condensed Consolidated Financial Statements.......................6
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................7
-2-
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1996 December 31, 1995
-------------- -----------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT:
Cash and cash equivalents $ 611,656 $ 200,989
Accounts receivable, net of allowance for
doubtful accounts of $1,250,000 in 1996
and $1,050,000 in 1995 36,589,206 33,013,943
Inventories 42,033,149 43,295,440
Prepaid expenses and other current assets 3,766,526 3,840,889
------------- ------------
TOTAL CURRENT ASSETS 83,000,537 80,351,261
FURNITURE, AUTOS AND EQUIPMENT, at cost,
less accumulated depreciation and amortization
of $2,891,068 in 1996 and $2,645,806 in 1995 3,000,008 3,101,973
OTHER ASSETS 257,111 254,828
-------------- -----------
$86,257,656 $83,708,062
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable - affiliate $13,715,396 $ 9,245,742
Accounts payable - trade 19,807,299 24,491,010
Accrued expenses and other 1,746,603 1,964,893
------------- ------------
TOTAL CURRENT LIABILITIES 35,269,298 35,701,645
REVOLVING CREDIT LOAN 23,531,420 20,965,263
CAPITAL LEASE OBLIGATIONS 608,415 702,114
------------- -------------
TOTAL LIABILITIES 59,409,133 57,369,022
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - 1,000,000 shares
authorized; none issued - -
Common stock, $.01 par value - 7,000,000 shares
authorized; 4,380,525 issued and outstanding 43,806 43,806
Additional paid-in capital 18,435,164 18,435,164
Retained earnings 8,369,553 7,860,070
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 26,848,523 26,339,040
----------- -----------
$86,257,656 $83,708,062
=========== ===========
See notes to condensed consolidated financial statements
</TABLE>
-3-
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31
--------------------------------------------
1996 1995
--------------- --------
<S> <C> <C>
NET SALES $98,627,335 $103,820,555
COST OF SALES 90,750,338 95,734,943
------------ -------------
GROSS PROFIT 7,876,997 8,085,612
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 6,562,569 7,304,907
------------ --------------
INCOME FROM OPERATIONS 1,314,428 780,705
OTHER CHARGES, net 492,945 498,195
------------- --------------
INCOME BEFORE INCOME TAXES 821,483 282,510
INCOME TAXES 312,000 110,750
------------- --------------
NET INCOME $ 509,483 $ 171,760
============ =============
EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary and fully diluted $ 0.12 $ 0.04
=============== ================
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary and fully diluted 4,380,525 4,380,525
============ ============
See notes to condensed consolidated financial statements
</TABLE>
-4-
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
Three months ended
March 31,
---------------------
1996 1995
---------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 509,483 $ 171,760
---------- -----------
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 245,262 217,085
Provision for losses on accounts receivable 200,000 0
Changes in operating assets:
Accounts receivable (3,775,263) (558,275)
Inventories 1,262,291 (1,578,640)
Prepaids and other 74,363 672,468
Other assets (2,283) 38,027
Changes in operating liabilities:
Accounts payable - affiliate 4,469,654 (5,909,619)
Accounts payable and accrued expenses (4,902,001) 6,387,114
---------- -----------
Total adjustments (2,427,977) (731,840)
---------- -----------
Net cash used by operating activities (1,918,494) (560,080)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (143,297) (209,930)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit loan 2,566,157 0
Repayment of capital lease obligations (93,699) (39,945)
----------- ------------
Net cash provided by financing activities 2,472,458 (39,945)
----------- ------------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 410,667 (809,955)
CASH AND CASH EQUIVALENTS - beginning 200,989 834,355
----------- ------------
CASH AND CASH EQUIVALENTS - end $ 611,656 $ 24,400
========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 552,502 $ 368,357
Income taxes $ 0 $ 31,893
See notes to condensed consolidated financial statements
-5-
<PAGE>
LIUSKI INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. Condensed Consolidated Financial Statements
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of Management, all adjustments
(consisting of only normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. For further information refer to
the consolidated financial statements and footnotes thereto in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995, which are
incorporated by reference herein.
Note 2. Revolving Credit Loan
In June 1995, the Company signed a $50,000,000 credit facility
replacing the Company's existing $25,000,000 revolving credit loan and
$14,000,000 line for the floorplanning of inventory. The new facility provides
for revolving borrowings of up to $35,000,000 and $15,000,000 for inventory
floorplanning. Amounts available on the revolving credit loan are based on a
formula of the sum of up to 85% of eligible receivables and the lesser of 50% of
the eligible inventory or $15,000,000. Outstanding borrowings bear interest at
1/4% per annum above the lending banks prime rate or 125 basis points above
LIBOR rates and mature in June, 1998. The debt is collateralized by a lien on
all of the Company's assets. As of March 31, 1996, the Company owed $23,531,420
under its revolving credit loans.
Note 3. Contingencies
In March 1994, several shareholders of the Company filed class action
lawsuits in the United States District Court for the Eastern District of New
York against the Company and certain of its officers asserting violation of
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10(b)5 promulgated
thereunder. These actions, since consolidated into a single action, purport to
be based on statements contained in a press release and SEC Form 10-Q issued by
the Company in the latter part of 1993 and is entitled "In re Liuski
International, Inc. Securities Litigation," Civil Action No. 94-CV-1045. The
plaintiffs' consolidated amended complaint asserts that the Company's purported
omissions or misrepresentations falsely inflated the value of the Company's
stock. The plaintiffs seek to represent purchasers who acquired the Company's
common stock during various periods, the earliest of which commenced on November
8, 1993 and ended on March 4, 1994. No class has been certified to this date.
The complaint demands damages in an unspecified amount. In September, 1995, the
plaintiffs filed and served a second amended and consolidated complaint.
On December 4, 1995, the Company and its named officers filed a motion
to dismiss the action for failure to state a cause of action and failure to
plead fraud with particularity. That motion has been fully briefed by both sides
and submitted to the court. To date, no decision has been made on the motion.
The Company also moved for a stay of discovery pending determination of the
motion to dismiss. That motion was granted by Magistrate Judge Boyle by order
dated December 13, 1995. The Company and its named officers intend to defend
this suit vigorously.
-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction
with the Condensed Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS
Three months ended March 31, 1996 and 1995
Net Sales: Net sales for the three months ended March 31, 1996 were
$98,627,335 representing a decrease of $5,193,220 (5.0%) from $103,820,555 for
the three months ended March 31, 1995. Sales from the distribution centers in
the following regions changed as follows: Southeast region, 45.1%; Northeast
region (including Canadian distribution center), -37.0%; Mid- and Southwest
region, -42.1%; Western region, 5.7%; Pacific region, -73.8% and Mail Order,
197.9%. Part of the decrease in the Northeast region and increase in the
Southeast region was caused by crediting corporate sales previously allocated to
New York to Georgia in conjunction with the relocation of corporate sales
personnel to the Georgia office.
At the beginning of March, 1996, the Company changed its computerized
management information systems software. Early in the transition, the Company
experienced several problems that temporarily impacted its ability to process
orders and ship products. While these problems are typical for such a systems
conversion and were minor in nature, they nonetheless, negatively impacted sales
during March. Sales were also impacted as a result of increased pricing to allow
for the recovery of shipping costs related to certain heavy low margin products.
To a lesser extent, sales during the three months ended March 31, 1996, were
negatively affected by the shortages the Company experienced with respect to
certain multimedia kits.
Sales of the Company's Magitronic brand of personal computers and
notebook computers for the three months ended March 31, 1996 increased to
$22,667,973 (23.0% of net sales) from $18,525,090 (17.8% of net sales) for the
three months ended March 31, 1995. The Company believes that the increase in
sales of these products was due to the success of the Company's high end
notebook computers, competitive pricing, fast delivery of custom-made systems as
well as the growing acceptance of the Company's Magitronic brand in the market.
Included in Magitronic personal computers are private-label and brand-name
components that the Company also sells separately in its distribution business.
In addition, the Company also sells components separately under the Magitronic
name. To enhance the visibility of Magitronic products, in January, 1996, the
Company created a separate Magitronic division that will focus on distributing
Magitronic products through new distribution channels including third party mail
order businesses and other distributors. Sales of this division through these
new distribution channels was $533,672 for the three months ended March 31,
1996.
While the Company distributes products from more than 70 U.S.
suppliers, the loss of major suppliers or a shortage in a particular product
could have a material adverse impact on the Company during the relatively brief
period the Company believes it would need to establish alternate sources of
supply at required volume levels. Although the Company's business is not highly
seasonal, the second calender quarter is generally a period of weaker net sales
in comparison to the rest of year.
-7-
<PAGE>
Gross Profit: Gross profit decreased by $208,615 to $7,876,997 (8.0% of
net sales) for the three months ended March 31, 1996 from $8,085,612 (7.8% of
net sales) for the three months ended March 31, 1995. The lower gross margin was
primarily due to reduced net sales. The higher gross margin as a percentage of
net sales was a result of increased sales of Magitronic personal computers and
notebook computers, which generally have higher margins. Over the last few
years, the computer industry has experienced intense price competition and
Management believes that the price competitive conditions in the industry will
continue.
Selling, General and Administrative Expenses: In 1995, the Company
initiated and completed a strategic streamlining program that included the
relocation of the Company's corporate headquarters and assembly operations as
well as the restructuring and consolidation of the Company's distribution
system. Prior to the streamlining program, the Company's headquarters and
primary assembly facility were located in Melville (NY) and the Company's
products were supplied from ten distribution centers. During 1995, the Company
moved its headquarters and primary assembly operations to Norcross (GA) and
consolidated its distribution centers from ten to four. The strategic
streamlining program was implemented to provide the Company with the opportunity
to improve operating efficiencies and economies of scale.
For the three months ended March 31, 1996, selling, general and
administrative expenses decreased by $742,338 to $6,562,569 (6.7% of net sales)
from $7,304,907 (7.0% of net sales) for the three months ended March 31, 1995,
primarily due to efficiencies from the strategic streamlining program. Salaries,
employment taxes and employee benefits for the three months ended March 31, 1996
decreased to $4,217,000 from $4,549,955 for the three months ended March 31,
1995. Additional savings of approximately $300,000 were achieved through
reductions of rent, telephone and other office expenses.
Other Charges: Net interest expense decreased to $492,945 for the three
months ended March 31, 1996 from $498,195 for the first quarter of 1995 as a
result of decreases in interest costs due to the Company's new revolving credit
loan, which was partially offset by the interest cost related to increased
borrowings. The interest rate paid by the Company under its revolving credit
loan was 1/4% over the prime rate or 125 basis points over LIBOR.
Net Income: Net income increased by $337,723 (196.6%) to $509,483 (.5%
of net sales) for the three months ended March 31, 1996 from $171,760 (.2% of
net sales) for the three months ended March 31, 1995.
IMPACT OF INFLATION
The Company has not been adversely affected by inflation because
technological advances and competition within the microcomputer industry have
generally caused prices of products sold by the Company to decline. The Company
has flexibility in its pricing because it has no long-term contracts with any of
its customers and, accordingly, could, if necessary, and depending on
competitive factors, pass along price changes to its customers.
-8-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its growth through borrowings under its revolving
credit loan, equity capital and credit terms from its major suppliers. In the
three months ended March 31, 1996 and March 31, 1995, net cash used by operating
activities was $1,918,494 and $560,080, respectively. The change in net cash
flow from operating activities between the three months ended March 31, 1996 and
March 31, 1995 in the amount of $1,358,414 was primarily due to growth in
accounts receivable which was partially offset by reduced inventories. The
Company may experience shifts in cash flow in the future, particularly if its
suppliers provide more restrictive credit terms than the Company currently is
afforded. For the three month periods ended March 31, 1996 and March 31, 1995,
the Company generally paid its suppliers approximately 35-40 days from the date
of invoice. Terms vary from 1 day to 60 days. The Company takes most early pay
discounts when offered.
Working capital was $47,731,239 as of March 31, 1996 and $44,649,616
as of December 31, 1995. On June 23, 1995, the Company signed a new three year
$50,000,000 credit facility replacing its existing $25,000,000 revolving credit
loan and $14,000,000 line for floorplanning of inventory. The new facility
provides for revolving cash borrowings of up to $35,000,000 and $15,000,000
for inventory floorplanning. Borrowings under the revolving credit loan bear
interest at 125 basis points over LIBOR or the prime rate plus 1/4%. Amounts
available under the revolving credit loan are based on a formula of the sum of
up to 85% of eligible receivables and 50% of eligible inventory not to exceed
$15,000,000. At March 31, 1996 and December 31, 1995, the Company owed
$23,531,420 and $20,965,263, respectively, under its revolving credit loans.
The Company was obligated under letters of credit in the amount of
$742,800 on March 31, 1996 and had no such obligations outstanding as of
December 31, 1995, leaving an availability under its revolving credit loan
of $10,725,780 on March 31, 1996 and $14,034,737 on December 31, 1995.
ASSET MANAGEMENT
Inventory: Management attempts to maximize product availability and
delivery while minimizing inventory levels so as to lessen the risk of product
obsolescence and price fluctuations. Most products are stocked to provide a 30
to 45-day supply. The Company often reduces prices of products in its
inventory in order to improve its turnover rate. The Company turned
its inventory on an average every 43 days during the first three
months of 1996 and every 42 days during first three months of 1995.
The Company takes a physical inventory every month which is compared
to its perpetual inventory and monitors inventory levels daily according
to sales made by product and distribution center.
Most of the Company's U.S. suppliers provide price protection, by way
of credits, against price reductions by the supplier between the time of the
initial sale to the Company and the subsequent sale by the Company to its
customer. Such suppliers accept defective merchandise returned within 12 to 15
months after shipment to the Company and some permit the Company to rotate
its inventory by returning slow moving inventory for other inventory.
-9-
<PAGE>
Accounts Receivable: The Company primarily sells its products on a
cash, C.O.D. or terms of up to 30 days basis. The Company's average days'
receivable was approximately 33 days for the three month period ended March
31, 1996 and approximately 19 days for the three month period ended March 31,
1995. This increase in the average days sales receivable results from the
Company extending credit to more of its customers.
MANAGEMENT ESTIMATES
Financial statements prepared in conformity with generally accepted
accounting principles necessitates the use of management estimates.
Management has estimated reserves for inventory obsolescence and uncollectible
accounts receivable based upon historical and developing trends, aging of items,
and other information it deems pertinent to estimate collectibility and
realizability. It is possible that these reserves will change within a year,
and the effect of the change could be material to the Company's consolidated
financial statements.
RECENT ACCOUNTING PRONOUNCEMENTS
Stock Based Compensation: The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", which establishes financial and reporting
standards for stock-based employee compensation plans. The Company intents to
adopt this statement during its year ending December 31, 1996. Other than
additional disclosures in the financial statements regarding stock options
granted pursuant to the Company's 1991 and 1994 Stock Option Plans, this
statement will not have an effect on the Company's consolidated financial
statements.
Financial Instruments: The Financial Accounting Standards Board has
issued Statement of Financial Accounting Standards No. 121, "Accounting for
the impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of", which requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. The Company intends
to adopt this statement during the year ending December 31, 1996.
Management does not believe this statement will have a material impact
on the Company's consolidated financial statements.
-10-
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) (i) Exhibit 11 (statement concerning computation of per share
earnings) and exhibit 15 (letter concerning unaudited interim financial
information) are each hereby incorporated by reference from "Notes to
Condensed Consolidated Financial Statements" of Part I - Financial
Information, Item 1 Financial Statements, contained in this Form 10-Q.
(ii) Exhibit 27 (Financial Data Schedule for the first
quarter of 1996)
(b) No reports on Form 8-K were filed by the Registrant during the
period ended March 31, 1996.
-11-
<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.
Dated: May 9, 1996
LIUSKI INTERNATIONAL, INC.
By: /s/
--------------------------
Mark K. Rafuse
Chief Financial Officer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 611
<SECURITIES> 0
<RECEIVABLES> 36,589
<ALLOWANCES> 1,250
<INVENTORY> 42,033
<CURRENT-ASSETS> 83,001
<PP&E> 3,008
<DEPRECIATION> 2,891
<TOTAL-ASSETS> 86,258
<CURRENT-LIABILITIES> 35,269
<BONDS> 0
0
0
<COMMON> 44
<OTHER-SE> 26,805
<TOTAL-LIABILITY-AND-EQUITY> 86,258
<SALES> 98,627
<TOTAL-REVENUES> 98,627
<CGS> 90,750
<TOTAL-COSTS> 90,750
<OTHER-EXPENSES> 6,563
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 493
<INCOME-PRETAX> 821
<INCOME-TAX> 312
<INCOME-CONTINUING> 509
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 509
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
