United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from To
Commission File Number 0-19051
LXE Inc.
(Exact name of registrant as specified in its charter)
Georgia 58-1829757
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
303 Research Drive
Norcross, GA 30092-2993
Address of principal executive offices Zip Code
Registrant's Telephone Number, Including Area Code-(404) 447-4224
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
The number of shares outstanding of each of the issuer's classes
of common stock, as of the close of business on November 1, 1995:
Class Number of Shares
Common Stock, $.01 Par Value 5,554,644
2
Index
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations -
Three Months Ended and Nine Months
Ended September 30, 1995 and 1994 3
Consolidated Balance sheets - September 30,
1995 and December 31, 1994 4-5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1995
and 1994 6
Notes to Interim Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8
Part II. Other Information 9
3
Part I
Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
1995 1994 1995 1994
Net sales 11,348 17,031 45,188 45,431
Cost of sales 7,197 8,687 25,718 22,443
Gross profit 4,151 8,344 19,470 22,988
Selling, general and
administrative expenses 5,395 4,824 15,170 13,936
Product development and
engineering expenses 1,993 1,652 5,100 4,472
Operating income (loss) (3,237) 1,868 (800) 4,580
Interest and other income 55 31 473 90
Interest expense (132) (50) (247) (147)
Earnings (loss) before
income taxes (3,314) 1,849 (574) 4,523
Income tax expense (benefit) (1,291) 740 (275) 1,729
Net earnings (loss) (2,023) 1,109 (299) 2,794
Earnings (loss) per common
and common equivalent share (.36) .19 (.05) .48
Weighted average number of
common and common equivalent
shares 5,555 5,765 5,525 5,764
See accompanying notes to interim consolidated financial statements.
4
Consolidated Balance Sheets (Unaudited)
(In thousands)
September 30 December 31
1995 1994
Assets
Current assets:
Cash and interest bearing deposits 1,708 1,537
Marketable securities (reverse re-
purchase agreements in 1994) 307 6,400
Total cash and cash equivalents 2,015 7,937
Trade accounts receivable, net 12,939 16,222
Inventories:
Work in process 5,470 3,334
Parts and materials 9,052 6,145
Total inventories 14,522 9,479
Deferred income tax benefit 778 778
Total current assets 30,254 34,416
Property, plant and equipment:
Land 250 250
Building and leasehold improvements 4,917 4,872
Machinery and equipment 17,125 13,919
Furniture and fixtures 1,219 1,051
23,511 20,092
Less accumulated depreciation and
amortization 11,261 9,376
Net property, plant and equipment 12,250 10,716
Other assets 5,791 609
Total assets 48,295 45,741
See accompanying notes to interim consolidated financial statements.
5
Consolidated Balance Sheets (Unaudited), Continued
(In thousands, except share data)
September 30 December 31
1995 1994
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt 267 244
Current installments of long-term debt
to Parent 275 275
Short term borrowings 4,650 -
Accounts payable 5,330 5,552
Income taxes payable - 1,186
Accrued compensation costs 1,177 1,452
Deferred revenue 955 1,147
Other current liabilities 564 593
Due to Parent 372 355
Total current liabilities 13,590 10,804
Long-term debt, excluding current
installments 144 350
Long-term debt to Parent, excluding
current installments 1,466 1,672
Deferred income taxes 617 617
Total liabilities 15,817 13,433
Stockholders' equity:
Preferred stock of $1.00 par value
per share. Authorized 5,000,000
shares; none issued or outstanding - -
Common stock of $.01 par value per
share. Authorized 20,000,000 shares;
5,555,000 issued and outstanding in
1995 and 5,436,000 in 1994 56 54
Additional paid-in capital 18,950 18,473
Retained earnings 13,472 13,771
Total stockholders' equity 32,478 32,298
Total liabilities and stockholders'
equity 48,295 45,741
See accompanying notes to interim consolidated financial statements.
6
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months Ended September 30
1995 1994
Cash flows from operating activities:
Net earnings (loss) $ (299) 2,794
Adjustments to reconcile net earnings
(loss)to net cash flows from operating
activities:
Depreciation and amortization 2,038 1,712
Changes in operating assets and
liabilities:
Trade accounts receivable 3,283 (2,105)
Inventories (5,043) 970
Accounts payable (222) 1,069
Income taxes (1,760) 388
Accrued compensation (275) 515
Deferred revenue (192) 52
Due to Parent and other (791) 205
Net cash provided by (used in)
operating activities (3,261) 5,600
Cash flows from investing activities:
Purchase of property, plant and
equipment (3,643) (1,858)
Capitalized product software costs and
other market-related investments (3,143) -
Proceeds from maturity of marketable
securities - 800
Net cash used in investing
activities (6,786) (1,058)
Cash flows from financing activities:
Payments on long-term debt (183) (163)
Payments on long-term debt to Parent (206) (206)
Short term borrowings 4,650 -
Proceeds from exercise of stock options,
net of withholding taxes paid (136) 69
Net cash provided by (used in)
financing activities 4,125 (300)
Net change in cash and cash
equivalents (5,922) 4,242
Cash and cash equivalents at January 1 7,937 2,697
Cash and cash equivalents at September 30 2,015 6,939
Supplemental disclosure of cash flow
information:
Cash paid for interest 247 127
Cash paid for income taxes 1,378 1,212
See accompanying notes to interim consolidated financial statements.
7
Notes to Interim Consolidated Financial Statements (Unaudited)
(1) Basis of Presentation
In the opinion of management, these interim consolidated financial
statements reflect all normal and recurring adjustments necessary for a
fair presentation of results for such periods. The results of operations
for any interim period are not necessarily indicative of results for the
full year. These financial statements should be read in conjunction with
the financial statements and related notes contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1994.
(2) Earnings Per Share
Earnings per common and common equivalent share for the interim periods
were based on the weighted average number of shares of common stock
outstanding and equivalent shares derived from dilutive stock options,
(except for loss periods). Fully diluted earnings per share are not
significantly different from the primary earnings per share presented.
(3) Other Assets
In the second quarter of 1995, the Company acquired a minority ownership
interest in a non-public U.S. company. This investment is valued at cost
and is included in other assets on the accompanying balance sheet.
(4) New Accounting Standard
The Company has adopted SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," which was issued
by the Financial Accounting Standards Board in March 1995. No adjustments
to the carrying value of recorded assets were required as a result of
adopting SFAS 121.
(5) Capitalization of Software Costs
In 1995, the company has capitalized $643,000 of certain costs incurred to
develop software which will be licensed to customers. Capitalized software
costs, which are included in other assets, will be amortized using the
greater of the ratio of current gross revenues for the product to the total
of current and anticipated future gross revenues or the straight-line
method over three years.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Net sales and the underlying level of orders activity decreased in the
third quarter of 1995 compared with the third quarter for 1994. Management
believes that these decreases related to short-term effects of the
Company's transition to an expanded product line that will support DOS,
Windows and client/server networks. The Company has undertaken efforts
during this product line expansion to stimulate orders for its current
products, including an initiative to encourage customers to upgrade their
systems from the earlier generations of LXE equipment. As a result of this
initiative and other specific orders expected to be received, the Company's
order and sales activity should increase in the fourth quarter compared
with the third quarter; however, the Company's 1995 fourth quarter results
are likely to be significantly less profitable than prior profitable
quarters in 1995 or the fourth quarter of 1994.
Cost of sales, as a percentage of net sales, was 63% in the third quarter
of 1995 and 57% in the first nine months of 1995, compared with 51% and
49%, respectively, in the same periods in 1994. The increases in the 1995
cost of sales percentage reflect increased distribution of the Company's
products through indirect channels that generally have a lower profit
margin than direct sales; the change in the cost of sales percentage also
reflects competitive pricing pressures and, for the three months, a lower
sales base to absorb fixed overhead expenses. Selling, general and
administrative expenses increased due to expansion of the European sales
subsidiaries and expansion of the Company's internal sales support efforts.
Product development and engineering expenses in 1995 also increased to
develop new products with DOS, Windows and client/server capabilities.
Other income for the interim periods has been higher in 1995 compared with
1994 due to currency translation gains associated with the Company's
European operations.
The consolidated tax benefit recognized for the first nine months of 1995
is based upon a weighted average effective tax rate (comparable with the 38%
as reported in the previous fiscal year) as well as other tax benefits,
including those related to certain export activities.
Liquidity and Capital Resources
Cash and cash equivalents decreased as a result of several factors, mainly
the transition to the expanded product line and associated increase in
inventories. In addition, the Company has had total capital expenditures
of $6.8 million for market related investments, development of product
software and the purchase of equipment and internal software. As a result
of the use of cash in the first nine months of the year, the Company
borrowed $4.7 million on an unsecured credit agreement with a commercial
bank, with interest at the bank's prime rate.
Management does not expect to generate significant positive cash flow in
the fourth quarter of 1995, however, the Company's sources of cash and
financing are believed to be sufficient to fund current business
activities.
9
PART II
Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - No exhibits are filed as part of this Report on Form 8-K.
(b) Reports on Form 8-K - No reports on Form 8-K were filed by the
registrant during the period covered by this report on Form 10-Q.
10
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.
LXE INC.
By: /s/ Date: 11/14/95
Thomas E. Sharon, Chairman
of the Board and Chief
Executive Officer
By: /s/ Date: 11/14/95
Don T. Scartz, Chief Financial
Officer and Treasurer