United StatesLXE INC.
POST OFFICE BOX 7700
NORCROSS, GA 30091-7700
May 14, 1996
Securities and Exchange Commission
Washington, D. C. 20549
Gentlemen:
Pursuant to the requirements of the Securities Exchange Act of
1934, we are transmitting herewith the following Form 10-Q for
the quarter ended March 31, 1996.
Sincerely,
LXE INC.
Gail Fairchild
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
ORMarch 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.1934
For the transition period from Toto
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, GAGeorgia 30092-2993
Address(Address of principal executive offices Zip Codeoffices) (Zip Code)
Registrant's Telephone Number, Including Area Code-(404)(770) 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 NovemberMay 1, 1995:1996:
Class Number of Shares
Common Stock, $.01 Par Value 5,554,644
2
Index5,574,518
Page No.
Part I.1 of 10.
FORM 10-Q
-2-
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 StatementsLXE Inc.
Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
Three Months Ended
Nine Months Ended
September 30 September 30March 31
1996 1995 1994 1995 1994
Net sales 11,348 17,031 45,188 45,431$14,163 17,306
Cost of sales 7,197 8,687 25,718 22,4437,622 9,174
Gross profit 4,151 8,344 19,470 22,9886,541 8,132
Selling, general and administrative
expenses 5,395 4,824 15,170 13,9365,256 5,031
Product development and engineering
expenses 1,993 1,652 5,100 4,4722,020 1,672
Operating income (loss) (3,237) 1,868 (800) 4,580(735) 1,429
Interest and other income 55 31 473 90244 108
Interest expense (132) (50) (247) (147)(145) (52)
Earnings (loss) before income taxes (3,314) 1,849 (574) 4,523(636) 1,485
Income tax expense (benefit) (1,291) 740 (275) 1,729(242) 578
Net earnings (loss) (2,023) 1,109 (299) 2,794
Earnings$ (394) 907
Net earnings (loss) per common and
common equivalent share (.36) .19 (.05) .48$ (.07) .16
Weighted average number of common
and common equivalent shares 5,555 5,765 5,525 5,7645,790
See accompanying notes to interim consolidated financial
statements.
4FORM 10-Q
-3-
LXE Inc.
Consolidated Balance Sheets (Unaudited)
(In thousands)
September 30March 31 December 31
1996 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$ 1,572 1,881
Trade accounts receivable, net 12,939 16,22215,137 16,237
Inventories:
Work in process 5,470 3,3343,419 3,623
Parts and materials 9,052 6,1459,312 8,906
Total inventories 14,522 9,47912,731 12,529
Prepaid income taxes 1,332 1,027
Deferred income tax benefit 778 778869 869
Total current assets 30,254 34,41631,641 32,543
Property, plant and equipment:
Land 250 250
Building and leasehold improvements 4,917 4,8725,394 5,371
Machinery and equipment 17,125 13,91918,035 17,213
Furniture and fixtures 1,219 1,051
23,511 20,0921,234 1,238
Total property, plant and equipment 24,913 24,072
Less accumulated depreciation and
amortization 11,261 9,37612,579 11,949
Net property, plant and equipment 12,250 10,71612,334 12,123
Other assets 5,791 609
Total assets 48,295 45,741(note 4) 5,014 4,815
$48,989 49,481
See accompanying notes to interim consolidated financial statements.
5FORM 10-Q
-4-
LXE Inc.
Consolidated Balance Sheets (Unaudited), Continued
(In thousands, except share data)
September 30March 31 December 31
1996 1995 1994
Liabilities and Stockholders' Equity
Current liabilities:
Current installments of long-term debt 267 244$ 280 275
Current installments of long-term debt
to Parent 275 275
Short term borrowings 4,650 -
Accounts payable 5,330 5,552
Income taxes payable - 1,1865,017 4,431
Accrued compensation costs 1,177 1,4521,191 994
Deferred revenue 955 1,1471,784 1,296
Other current liabilities 564 593367 220
Due to Parent 372 355362 240
Total current liabilities 13,590 10,8049,276 7,731
Long-term debt, excluding current installments 144 3505,351 6,925
Long-term debt to Parent, excluding current
installments 1,466 1,6721,328 1,397
Deferred income taxes 617 617817 817
Total liabilities 15,817 13,43316,772 16,870
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 5,554,644 in 1996 and 5,436,275
in 1995 and 5,436,000 in 1994 56 5456
Additional paid-in capital 18,950 18,47318,949 18,949
Retained earnings 13,472 13,77113,212 13,606
Total stockholders' equity 32,478 32,298
Total liabilities and stockholders'
equity 48,295 45,74132,217 32,611
$48,989 49,481
See accompanying notes to interim consolidated financial statements.
6FORM 10-Q
-5-
LXE Inc.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
NineThree Months Ended September 30March 31
1996 1995 1994
Cash flows from operating activities:
Net earnings (loss) $ (299) 2,794(394) 907
Adjustments to reconcile net earnings (loss)to net cash flows fromprovided by (used in) operating
activities:
Depreciation and amortization 2,038 1,712630 645
Changes in operating assets and liabilities:
Trade accounts receivable 3,283 (2,105)1,100 (925)
Inventories (5,043) 970(202) (1,719)
Accounts payable (222) 1,069586 (7)
Income taxes (1,760) 388(305) (357)
Accrued compensation (275) 515costs 197 (4)
Deferred revenue (192) 52488 258
Due to Parent and other (791) 205224 (388)
Net cash provided by (used in)
operating activities (3,261) 5,6002,324 (1,590)
Cash flows from investing activities:
Purchase of property, plant and equipment (3,643) (1,858)(841) (1,213)
Capitalized product software costs and
other market-related investments (3,143)(154) -
Proceeds from maturity of marketable
securities - 800
Net cash used in investing activities (6,786) (1,058)(995) (1,213)
Cash flows from financing activities:
Payments on long-term debt (183) (163)(1,569) (61)
Payments on long-term debt to Parent (206) (206)
Short term borrowings 4,650 -(69) (69)
Proceeds from exercise of stock options net of withholding taxes paid (136) 69- 165
Net cash provided by (used in)
financing activities 4,125 (300)(1,638) 35
Net change in cash and cash
equivalents (5,922) 4,242interest
bearing deposits (309) (2,768)
Cash and cash equivalentsinterest bearing deposits at January 1 1,881 7,937 2,697
Cash and cash equivalentsinterest bearing deposits at September 30 2,015 6,939March 31 $ 1,572 5,169
Supplemental disclosure of cash flow information:
Cash paid for interest 247 127$ 132 51
Cash paid for income taxes 1,378 1,212$ 63 939
See accompanying notes to interim consolidated financial statements.
7FORM 10-Q
-6-
LXE Inc.
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, 1994.1995.
(2) Earnings Per(Loss) per Share
Earnings (loss) 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,
(exceptexcept dilutive stock options are excluded for loss periods).periods. Fully diluted
earnings per share are not significantly different from the primary
earnings per share presented.
(3) Accounting for Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board adopted Statement
of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for
Stock-Based Compensation," effective for fiscal years beginning after
December 15, 1995. The Company intends to comply with the provisions of
SFAS 123 in fiscal 1996 by continuing to recognize compensation cost from
stock options under the "intrinsic value" method, with additional footnote
disclosures to be provided, including the pro forma effects of applying the
"fair value" method of SFAS 123. Based upon this accounting policy, the
Company does not expect to recognize any compensation cost associated with
stock options granted in 1996.
(4) Other Assets
In the second quarterFollowing is a summary of other assets as of March 31, 1996 and December
31, 1995 the(in thousands):
March 31, December 31,
1996 1995
Investment in non-public U.S. Company acquired$2,500 2,500
Capitalized software costs 1,321 1,167
Other 1,193 1,148
Total other assets 5,014 4,815
The Company's investment in a non-public U.S. company comprises a minority
ownership interest and a loan repayable in a non-public U.S. company.three years. This investment is
valued at cost
and is included in other assets on the accompanying balance sheet.
(4) New Accounting Standardcost.
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 hasalso 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-linestraight-
line method over three years.
8FORM 10-Q
-7-
LXE Inc.
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 decreasedFirst quarter revenues were higher in the thirdCompany's international markets
but lower in the North American market, resulting in a net decrease in
consolidated revenues from the first quarter of 19951996 compared with the third quarter for 1994. Management
believes that these decreases relatedsame
period in 1995. The Company is addressing its lower North American
revenues by continuing to short-term effects of the
Company's transition to an expandedexpand its product line that willto support DOS,
Windowsmore
industry-standard technology platforms and client/server networks. The Company has undertaken efforts
during this product line expansionsystems, and by seeking 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 increaseform
strategic partnerships 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.new markets such as health care information
management.
Cost of sales, as a percentage of net sales, was 63% in the third quarter
of 1995 and 57%54% in the first nine monthsquarter
of 1995,1996 compared with 51% and
49%, respectively,53% 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
reflectsreflecting competitive pricing
pressures and, for the three months, a lower
sales base to absorb fixed overhead expenses.pressures. Selling, general and administrative expenses increasedwere higher in
1996 due to expansioncontinued growth of the European sales subsidiaries and expansion of the Company's internal sales support efforts.subsidiaries. Product
development and engineering expenses increased in the first quarter of 1996
compared with 1995 also increaseddue to develop new products with DOS, Windows and client/server capabilities.efforts to expand the product line.
Other income for the interim periods has beenfirst quarter of 1996 was higher than in 1995 compared with
1994 due tobecause
of currency translation gains associated with the Company's European
operations. Interest expense has increased with the Company's higher level
of borrowing under its revolving credit agreement. The consolidatedeffective tax benefit recognizedrate
for the first nine monthsquarter of 1995
is based upon a weighted average effective tax rate (comparable1996 was 38%, which was comparable with the 38%
as reported inrate
for the previouspreceding fiscal year) as well as other tax benefits,
including those related to certain export activities.year.
Liquidity and Capital Resources
CashNet cash provided by operations, less cash used in investing activities
(mainly purchases of property, plant and equipment), resulted in $1.3
million net positive cash equivalents decreased as a resultflow before debt payments. The Company made
total debt payments of several factors, mainly$1.6 million, including $1.5 million to reduce the
transition tolevel of borrowing under 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 unsecuredrevolving credit agreement with a commercial
bank, with interest at the bank's prime rate.loan. Management does not
expect to generate significant positive cash flow in the fourthsecond quarter of
1995, however,1996, but believes that the Company's present liquidity, together with cash
from operations and sources of cash andexternal financing, are believed to be sufficient to fundwill support its current
business activities.
9activities and capital investment plans.
FORM 10-Q
-8-
LXE Inc.
PART II
Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - No exhibits areThe following exhibit filed as part of this Report on Form 8-K.Report:
27.1 Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed by the
registrantRegistrant during the period covered by this report on Form 10-Q.
10
SIGNATURESFORM 10-Q
-9-
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.Inc.
By: /s/ Date: 11/5/14/9596
Thomas E. Sharon, Chairman of the Board
and Chief Executive Officer
By: /s/ Date: 11/5/14/9596
Don T. Scartz, ChiefTreasurer
(Chief Financial Officer and TreasurerOfficer)
FORM 10-Q
-10-
LXE Inc.
Exhibit Index
Page No.
Exhibit 27.1 Financial Data Schedule 11