SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
FORM 10-Q
(Mark One)
(X) Quarterly report pursuant to Section 13 of 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended December 1, 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 0-10843
CSP Inc.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2441294
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.
40 Linnell Circle, Billerica, Massachusetts
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(Address of principal executive offices)
Registrant's telephone number, including area code: (508)663-7598
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NONE
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(Former name, former address, 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 (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 ( )
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding January 4, 1996
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Common stock, $.01 par value 2,666,020 shares
1
INDEX
PAGE NUMBER
PART 1. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets.............................3
Consolidated Statements of Operations...................4
Consolidated Statements of Cash Flows...................5
Notes to Consolidated Financial Statements..............6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation......................7
PART II. OTHER INFORMATION:
Item 6. Exhibits & Reports on Form 8-K.........................15
2
CSP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars In Thousands)
December 1, August 25,
1995 1995
(Unaudited)
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ASSETS
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Current Assets:
Cash and cash equivalents $13,326 $11,069
Marketable securities 4,894 6,482
Accounts receivable, net 3,579 3,933
Inventories (Note 2) 2,343 2,150
Deferred income taxes 331 368
Prepaid expenses 417 471
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Total Current Assets 24,890 24,473
Property, equipment and improvements 3,432 3,470
Other Assets:
Land held for future development 163 163
Deferred income taxes 405 355
Other assets 819 818
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Total other assets 1,387 1,336
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Total Assets $29,709 $29,279
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LIABILITIES AND SHAREHOLDERS' EQUITY
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Current Liabilities:
Accounts payable and accrued expenses $ 1,472 $ 1,461
Income taxes payable 337 150
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Total Current Liabilities 1,809 1,611
Deferred compensation and retirement plans 2,001 1,943
Shareholders' Equity:
Common stock, $.01 par value; authorized
7,500,000 shares; issued 2,954,334 and
2,912,304 shares 29 29
Paid-in capital 10,396 10,187
Retained earnings 17,442 17,224
Equity adjustment foreign currency translation 65 65
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27,932 27,505
Less: treasury stock at cost, 301,314 and
273,314 shares (Note 4) 2,033 1,780
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Total Shareholders' Equity 25,899 25,725
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Total Liabilities and Shareholders' Equity $29,709 $29,279
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See accompanying notes to consolidated financial statements.
3
CSP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars In Thousands, Except For Per Share Data)
(Unaudited)
/-For The Three Months Ended-/
December 1, November 25,
1995 1994
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Sales $ 4,370 $ 4,620
Costs and Expenses, net:
Cost of sales 1,755 2,236
Engineering and development 703 739
Marketing and sales 1,201 1,398
General and administrative 523 523
Restructuring Costs (Note 3) --- 409
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Total costs and expenses, net 4,182 5,305
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Operating income (loss) 188 (685)
Other Income 223 118
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Income (loss) before income taxes 411 (567)
Income tax expense (benefit) 193 (135)
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Net income (loss) $218 ($432)
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Primary earnings (loss) per share $0.08 ($0.15)
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Weighted Average Shares Outstanding 2,706 2,800
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See accompanying notes to consolidated financial statements.
4
CSP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
/--For The Three Months Ended--/
December 1, November 25,
1995 1994
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Net income (loss) $218 ($432)
Adjustments to reconcile net income to
net cash from(used for) operating activities:
Unrealized loss on mktble securities --- 11
Depreciation and amortization 237 184
Deferred compensation and retirement plans 58 29
Deferred income taxes (13) ---
Changes in operating assets and liablities:
Decrease in accounts receivable 354 1,400
(Increase) decrease in inventories (193) 83
Decrease in prepaid expenses 54 69
Increase in accounts payable and accrued
expenses 11 174
Increase (decrease) in income taxes payable 187 (218)
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Total adjustments 695 1,732
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Net cash from operating activities 913 1,300
Cash flows from (used for) investing activities:
Purchase of marketable securities (55,154) (30,088)
Sale of marketable securities 56,742 28,895
Property, equipment and improvements (199) (513)
Other assets (1) 25
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Net cash provided from (used for) investing
activities 1,388 (1,681)
Cash flows from (used for) financing activities:
Proceeds from stock options 209 46
Purchase of Treasury Stock (253) ---
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Net cash from (used for) financing activities (44) 46
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Net increase (decrease) in cash 2,257 (335)
Cash, beginning of period 11,069 8,556
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Cash, end of period $13,326 $ 8,221
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Supplementary information:
Income taxes paid , net $138 $8
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Interest paid --- ---
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See accompanying notes to consolidated financial statements.
5
CSP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company,
without audit, and reflect all adjustments which in the opinion of
management, are necessary for a fair statement of the results of the interim
periods presented. All adjustments were of a normal recurring nature.
Certain information and footnote disclosures normally included in the annual
financial statements which are prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Accordingly, the
Company believes that although the disclosures are adequate to make the
information presented not misleading, the financial statements should be read
in conjunction with the footnotes contained in the Company's Annual Report on
Form 10-K for the fiscal year ended August 25, 1995.
2. Inventories:
Inventories consist of the following:
December 1, August 25,
1995 1995
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($000's)
Raw materials $ 994 $ 851
Work-in-process 970 822
Finished goods 379 477
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Total $2,343 $2,150
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3. Restructuring Expenses:
In November 1994 the Company accrued approximately $409,000 of the estimated
costs to be incurred in consolidating its manufacturing operations and
reducing its workforce. These costs are comprised of severance costs of
$288,000 and $121,000 for closing the San Diego manufacturing operation.
4. Stock Repurchase:
On October 9, 1986 the Board of Directors authorized the Company to
repurchase up to 282,723 of the outstanding stock at market prices. On
September 28, 1995, the Board of Directors authorized the Company to
repurchase up to an additional 150,000 shares of the outstanding stock at
market prices. The timing of stock purchases are made at the discretion of
management.
6
CSP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
A summary of the period to period changes in principal items included in the
Statement of Operations is shown in Schedule I and II ( page 11 and 12 ).
RESULTS OF OPERATIONS - 1996 COMPARED TO 1995:
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Sales revenues of $4,370,000 for the three month period ended December 1,
1995 represents a decline of approximately 5% from the prior comparable
period of fiscal year 1995. Sales of the Embedded Computing Division
represented approximately $3,271,000 or 75% of total sales with the Supercard
family of products accounting for 70% of total sales compared to only 28% in
the prior comparable period of fiscal 1995. This increase is mainly due to
increased shipments to U.S. based COTS programs and medical image OEM
customers. Sales of older attached processor products such as the MAP-4000
and MiniMap represented less than 1% of total sales for the three month period
compared to 5% in the prior comparable period. These older products are sold
only to existing customers. The RTS-860 product represented less than 1% of
total sales for the three month period, a decline of 4%.
The Scanalytics Division (bio-instrumentation for molecular and cell biology)
sales represented 26% of total sales for the three month period compared to 16%
for the comparable period of fiscal 1995. This increase was mainly
attributable to an increase in shipments of the Cellscan product line which
accounted for 16% of total sales for the period compared to only 4% in the
comparable period of fiscal 1995. Sales generated from the Ambis product
line declined to 3% of total sales compared to 6% in the prior comparable
period of fiscal 1995. Software sales increased to 4% of total sales from
2% in the prior comparable quarter. This was mainly attributable to an
increase in sales to OEM customers and volume distributors. Revenue from
Scanalytics service contracts remained consistent with the prior comparable
period accounting for approximately 2% of total revenue.
7
Vision Systems Division sales of machine code readers accounted for only 1%
of total sales for the three months ended December 1, 1995 compared to 45% for
the prior comparable period. The balance of the procurement received from
UPS in 1994 for their automated sorting hub in Chicago, IL was shipped during
fiscal year 1995, and we had no shipments to UPS during the first quarter of
fiscal year 1996.
North American sales were approximately 89% of total sales for the three
month period ended December 1, 1995 which represents a 5% increase from the
prior comparable period. European sales accounted for approximately 4% of
total sales, a decline from the 9% of the prior comparable period. Sales in
the Far East also increased 3% to approximately 7% of total sales.
Cost of sales as a percentage of sales was approximately 40% for the three
month period compared to 48% for the same period of the prior fiscal year.
This decrease was primarily due to a change in products sold which tend to
carry more favorable margins. A significant portion of the prior comparable
quarterly sales in fiscal 1995 were derived from sales of machine code
reader units which carry a higher cost of sales as a percentage of sales
than either the Scanalytics or Embedded Computer products. The decreased
volume of shipments to UPS accounted for a major portion of the decrease for
the current period.
Engineering and development expenses as a percentage of sales for the three
month period ended December 1, 1995 remained fairly consistent with the same
period of the prior fiscal year at approximately 16% of sales. The increased
engineering and development expenses announced on October 27, 1995 have not
yet been incurred during the first quarter of fiscal 1996. The Scanalytics
division engineering and development expense remained consistent with the
prior comparable period at approximately 18% of total engineering and
development expense. Vision Systems division accounted for approximately 9%
of the total engineering and development expenses, compared to 2% for the
comparable period of fiscal 1995. This increase was due to the expanded
effort to upgrade the Lightning 500 bar code reader.
8
Sales and marketing expenses as a percentage of sales remained fairly
consistent with the prior comparable period at approximatley 28% of sales.
This represented a 14% decrease over the prior year. The decrease was due to
a reduction in commission expense of approximately $60,000, and labor
expense related to a reduction in staff which has not been replaced after
the reorganization last December.
General and administrative expenses remained consistent at $523,000, which
represents an increase of about 1% of total revenue. The increase in expense
related to expenses for the supplemental retirement plan and expenses for ISO
9000 certification.
In November, 1994, the Company recorded restructure charges of $409,000
against operations which was based on the best information available at the
time the decision was made to take the action of a work-force reduction,
moving the San Diego, California manufacturing operation to Billerica, MA and
to restructure and move the French subsidiary. This restructuring was
completed during fiscal year 1995.
Other income has increased compared to the prior comparable period due to the
change in the mix of investments from non-taxable securities to fully
taxable which have higher rates of return.
The Company continues its conservative investment strategy of maintaining a
short-term liquid position while maximizing revenues on an after-tax basis
with as limited an exposure of principal as possible. The Company believes
that as a result of maintaining a liquid position, it has been able to avoid
borrowing for capital needs as well as augment its operating results, and is
well positioned to make an acquisition or a joint venture if appropriate
opportunities arise.
9
FINANCIAL POSITION, CAPITAL RESOURCES AND LIQUIDITY:
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Working capital increased slightly to $23.1 million at the end of November
1995 from $22.9 million at the end of August 1995. Total cash and marketable
securities increased approximately $670,000 from August 25, 1995. This
increase is mainly due to the timing of cash receipts from customers.
Accounts receivable decreased approximately $354,000 from August 25, 1995.
This decrease is mainly due to cash receipts related to billings made at the
end of fiscal 1995 and a more even sales distribution during the recent
accounting period. Inventory increase $193,000 fromt the level reported at
August 25, 1995. This increase is mainly due to the purchase of long-lead
time items in anticipation of quarter 2 sales.
Management believes that all of the Company's current and foreseeable needs
can be met through working capital generated by operations and investments.
INFLATION AND CHANGING PRICES:
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Management does not believe that inflation and changing prices had
significant impact on either sales or revenues or income from continuing
operations during the three month period ended December 1, 1995. There is
no assurance, however, that the Company's business will not be materially
and adversely affected by inflation and changing prices in the future.
10
CSP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS SCHEDULE I
PERCENTAGE OF SALES
(Dollars In Thousands, Except For Per Share Data)
(Unaudited)
/----For The Three Months Ended----------/
December 1, % of November 25 % of
1995 Sales 1994 Sales
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Sales $ 4,370 100% $ 4,620 100%
Costs and Expenses, net:
Cost of sales 1,755 40% 2,236 48%
Engineering and development 703 16% 739 16%
Marketing and sales 1,201 28% 1,398 30%
General and administrative 523 12% 523 12%
Restructuring Costs --- --- 409 9%
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Total costs and expenses, net 4,182 96% 5,305 115%
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Operating income (loss) 188 5% (685) (15%)
Other Income 223 6% 118 3%
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Income before income taxes 411 10% (567) (13%)
Income tax expense (benefit) 193 5% (135) (3%)
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Net income $218 5% ($432) (10%)
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11
CSP INC. AND SUBSIDIARIES SCHEDULE II
CONSOLIDATED STATEMENTS OF OPERATION
PERIOD TO PERIOD DOLLAR AND PERCENTAGE CHANGE
(Dollars In Thousands, Except For Per Share Data)
(Unaudited)
/--For the Three Month Periods Ended--/
December 1, 1995 vs. November 25, 1994
$ Change % Change
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Sales ($250) (5.4)%
Costs and Expenses, net:
Cost of sales (481) (21.5)%
Engineering and development (36) (4.9)%
Marketing and sales (197) (14.1)%
General and administrative --- ---
Restructuring Costs (409) (100.0)%
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Total costs and expenses, net (1,123) (21.2)%
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Operating income 873 127.4%
Other Income 105 89.0%
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Income before income taxes 978 172.5%
Income tax expense 328 243.0%
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Net income $650 150.5%
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12
PART II. OTHER INFORMATION
Item 4. Submissions of Matters to a vote of Security Holders
NONE
Item 6. Exhibit and Reports on Form 8-K
a) Reports on Form 8-K
NONE
b) Exhibits
11.0 Data used in the calculation of net income
per share.
27.0 Financial Data Schedule.
13
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.
CSP Inc.
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(Registrant)
Date: 1/16/96 By: s/s David S. Botten
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David S. Botten
Chief Executive Officer and
President
Date: 1/16/96 By: s/s Gary W. Levine
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Gary W. Levine
Vice President of Finance and
Chief Financial Officer
14